Nonprofit organizations enjoy special privileges under unemployment laws. What are the privileges, and how can they benefit your organization? For most nonprofits, the following rules apply: (a) only state law unemployment taxes are owed, not federal; (b) smaller may be better; and (c) self-insurance may provide cost savings (but not always!). Additional tax considerations apply for covered nonprofits operating in multiple states. Notably, churches and other religious institutions are entirely exempt from unemployment coverage.
Sales tax exemption can be very valuable to a nonprofit organization, especially in a city like Chicago with a 9.25% tax. In Illinois, many nonprofit organizations qualify for state and local sales tax exemption. Sales tax exemption is by no means a slam-dunk, however, simply because an organization has an IRS determination letter in hand. The following guidance is for 501(c)(3) organizations operating in Illinois to qualify for, obtain, and retain state sales tax exemption.
What does the Illinois exemption cover (and not cover)?
The clergy housing allowance is safe for now. Last week, the Seventh Circuit Court of Appeals reversed a Wisconsin federal district court, which struck down the venerable clergy housing allowance. As a result of the Seventh Circuit’s decision, clergypersons who serve churches, synagogues, mosques, and other worshipping groups, may continue to exempt certain parts of their compensation from federal income tax.