Organizations established and operated exclusively for religious, charitable, scientific, literary or educational purposes are considered non-profit organizations if they have been held exempt from income tax under section 501(c)(3) of the Internal Revenue Code. To obtain this status, you must establish (by copy of a ruling from the Internal Revenue Service) that you have been held exempt from income tax under section 501(c)(3) of the Internal Revenue Code. However, you may still be subject to the Ohio unemployment compensation law if:
- You employed four or more individuals in some portion of a day in each of twenty different calendar weeks, in either the current or preceding calendar year.
Such organizations are, however, exempt from paying the federal tax used to pay the administrative costs of the unemployment compensation program.
Nonprofit organizations determined to be liable become contributory employers. Such organizations have the option of becoming a reimbursing employer. Reimbursing employers become liable for "payments in lieu of contributions," which means they are required to reimburse unemployment benefit charges on a dollar-for-dollar basis.
The decision to elect reimbursing status is one that must be decided by the organization. As a contributory employer, tax costs are limited to the highest rate provided in the law multiplied by the taxable wages paid by the organization. Thus, if the organization's employee turnover rate is high or is seasonal in nature, benefit costs could be very high and the limited liability afforded by being a contributory employer may be the best course of action. On the other hand, if the organization has little turnover of employees and is not likely to incur much in the way of benefit costs, then reimbursing status may be more desirable.
For additional information please contact the Contribution Section at 614-466-2319, or write to us at ODJFS, Contribution Section, PO Box 182404, Columbus, Ohio 43218-2404. You may also contact a local Compliance office.