TN 29 (06-05)

Citations:

Public Law 98-21; Regulation No. 4, Section 404.1025

A. Definition – Tax Exempt Nonprofit Organization

As described in section 501(c)(3) of the Internal Revenue Code, an organization may qualify for exemption from Federal income tax if it is organized and operated exclusively for one or more of the following purposes: religious, charitable, scientific, literary, educational, testing for public safety, fostering national or international amateur sports competition (only if none of its activities involve providing athletic facilities or equipment), or the prevention of cruelty to children or animals.

Qualifying organizations include nonprofit old-age homes, parent-teacher associations, charitable hospitals or other charitable organizations, Alumni associations, schools, chapters of the Red Cross or Salvation Army, Boys’ or Girls’ clubs and churches.

B. Policy - Social Security Coverage

1. January 1, 1984 Through Present

Section 102 of the 1983 Social Security Amendments provides mandatory coverage under Social Security for services performed by employees of nonprofit organizations beginning January 1, 1984.

2. 1951 Through 1983

Prior to January 1, 1984, nonprofit organizations could waive the Social Security exemption to secure coverage.

3. Before 1951

Service for 501(c)(3) nonprofit organizations is not covered.

C. Policy - Waiver Certificates (Prior to January 1, 1984)

1. Waiver Certificate

The 1950 legislation gave tax exempt organizations the option to waive their tax exempt status by:

• filing a waiver certificate (Form SS-15) and a List of Concurring Employees (Form SS-15a) with the Internal Revenue Service; and

• certifying that at least two-thirds of its employees, (determined on the basis of facts as of the filing date of the SS-15) concurred in the filing of the SS-15.

2. Deemed Coverage

If, after 6/73, the organization did not file a waiver certificate, but paid Social Security taxes for employees for three or more consecutive calendar quarters, the employer is deemed to have filed a waiver effective with the first day of the quarter for which payments were made.

3. Effective Date

For waivers filed:

a. Before January 1, 1966

The effective date of coverage is the first day of the quarter following the quarter in which the SS-15 is filed.

b. After December 31, 1965

The SS-15 may be effective with any of these dates:

• first day of the quarter of filing;

• first day of the calendar quarter following the quarter of filing; or

• first day of any of 20 calendar quarters immediately preceding the calendar quarter of filing.

4. Mandatory Coverage

Services performed by all employees hired after the effective date of the certificate are mandatorily covered.

5. Termination of Waiver

Prior to 1983, 501(c)(3) nonprofit employers could terminate coverage for their employees under the following conditions:

1. The waiver is in effect for 8 years before a termination can be filed; and

2. There is a 24-month waiting period before the termination becomes effective.

NOTE: Authority for termination of waiver is contained in the Internal Revenue Code.

IRS has jurisdiction with regard to any termination activity.

Terminations are no longer possible. Employees of organizations that terminated coverage become mandatorily covered beginning January 1, 1984.

6. Forms

a. Current

IRS Form 1023 —Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code is the form used to obtain an appropriate ruling or determination letter from the IRS to recognize an organization’s exemption from Federal income tax.

b. Prior to January 1, 1984

• SS-15 - Certificate Waiving Exemption from Taxes under FICA is the form a 501(c)(3) nonprofit organization used to waive its tax exemption and cover its employees under Social Security prior to mandatory coverage.

• SS-15a - List of Concurring Employees that contains the signature, address, and Social Security number of each employee who concurs with the filing of the SS-15.

NOTE: Organizations could amend the SS-15a to include additional concurring employees at any time within 24 months after the calendar quarter in which the waiver is filed.

D. List of Social Security Amendments

The following is a chronological summary of amendments that affect the coverage of services performed for 501(c)(3) organizations:

1. 1954

These amendments modify the time limitation for the filing of a supplemental list of concurring employees. Employers have up to 24 months from the end of the first calendar quarter for which the certificate is filed.

Prior to these changes, employers filed SS-15 certificates and reported wages of employees without the concurring list of employees.

Congress made special provisions for validation of wages reported in error.

2. 1956

These amendments extend the validation period from 1951 through July 31, 1956 for correcting erroneously reported wages.

3. 1957

These amendments provide for the validation of wages reported by organizations that did not file a waiver certificate.

4. 1958

These amendments permit organizations to amend their certificates to elect retroactive coverage, but no earlier than January 1, 1956.

Also, employees could be divided into two groups, those covered by a State retirement system, and those who are not.

Each group determines if the two-thirds concurrence is met in the filing of the certificate.

5. 1960

Congress revoked the two-thirds employee concurrence requirement when filing a waiver.

The period for validation of pay erroneously reported as self-employment income is extended from 1955 through 1961.

6. 1965

These amendments permit an organization to elect up to five years retroactive coverage. The waiver certificate can be effective on the first day of any of twenty calendar quarters preceding the quarter of filing.

The validation period for erroneously reported wages is extended to 1980 because of continual problems of erroneous reporting by employers.

7. 1976

By 1976, many nonprofit organizations were paying Social Security taxes without filing waiver certificates. On finding that taxes were not due, large refunds of taxes were obtained and coverage was eliminated.

The 1976 Amendments provide for constructive filing of waivers in certain cases where Social Security taxes are paid for 3 or more consecutive calendar quarters beginning with or after the September 1973 quarter.

• Under constructive filing, the organization is deemed to have waived its exempt status if taxes are paid for three consecutive quarters unless the organization obtains a refund before 9/9/76.

• If the organization obtained a refund before 9/9/76, then the organization had until 4/17/77 to file an actual waiver certificate and a list of all employees who wanted their coverage reinstated.

• Organizations not obtaining a refund before 9/9/76 are deemed to have filed a valid waiver covering all employees.

8. 1977

The 1977 Amendments:

• Provide tax relief for employers by:

  • forgiving the tax liability of organizations through 6/30/77 when the employer stopped paying taxes before 10/19/76 because no waiver certificates were filed.

  • extending the time to 3/31/78 to file a waiver for employers who received a refund.

• The amendments also provide that taxes paid while the employer is waiting for an IRS ruling on its 501(c)(3) status do not constitute constructive filing.

• Also, the employee could file a claim by 4/15/80 to receive credit for any part of the period in which contribution payments are forgiven but contributions have been made.

E. List of Organizations Which May Be Exempt from Income Tax under 501(a) of the Internal Revenue Code

• 501(c)(1) - Corporations organized under an Act of Congress (including Federal Credit Unions)

• 501(c)(2)--Title-holding corporations for single parents

• 501(c)(3) - Religious, educational, charitable, scientific, literary, testing for public safety, to foster national or international amateur sports competition, or prevention of cruelty to children or animals organizations

• 501(c)(4)--Civil leagues and social welfare organizations

• 501(c)(5)--Labor, agricultural and horticultural organizations

• 501(c)(6) - Business leagues, chambers of commerce, real estate boards, boards of trade, or professional football leagues

• 501(c)(7) - Social and recreational clubs

• 501(c)(8) - Fraternal beneficiary societies and associations

• 501(c)(9) - Voluntary employees' beneficiary associations

• 501(c)(10)--Domestic fraternal societies

• 501(c)(11) - Teachers' retirement fund associations

• 501(c)(12)--Local benevolent life insurance associations, mutual irrigation and telephone companies and like organizations

• 501(c)(13) - Cemetery companies

• 501(c)(14)--Credit unions and other mutual financial organizations

• 501(c)(15)--Mutual insurance companies (other than life) or associations

• 501(c)(16) - Cooperative organizations to finance crop operations

• 501(c)(17) - Supplemental unemployment benefit trusts

• 501(c)(18) - Employee funded pension trust (created before 6/25/59)

• 501(c)(19)--Veterans' organizations

• 501(c)(20)--Group legal services plan organizations

• 501(c)(21)--Black lung benefit trusts

• 501(c)(22) – Withdrawal liability payment fund

• 501(c)(23) – Veterans organization (created before 1880)

• 501(c)(25)--Title-holding corporations or trusts for multiple parents

• 501(c)(26) – State-sponsored high-risk health coverage organizations

• 501(c)(27) – State-sponsored workers’ compensation reinsurance organizations

• 501(c)(28) – National railroad retirement investment trust

• 501(d) - Religious and Apostolic associations

• 501(e) – Cooperative hospital service organizations

• 501(f) – Cooperative service organizations of operating educational organizations

• 501(k) – Child care organizations

• 501(n) – Charitable risk pools

• 521(a) - Farmers' cooperative associations

• 527 – Political organizations.

F. References/Resources

• IRS Publication 557, Tax Exempt Status for Your Organization: http://www.irs.gov/pub/irs-pdf/p557.pdf

• SSA Publication No. 05-10027, If You Work for a Nonprofit Organization (http://mwww.ba.ssa.gov/pubs/10027.html)