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Run the Payroll Fee Auditor →Blog · Payroll Management · Nonprofit
Nonprofits & Religious Organizations: Payroll Tax Guide (2026)
Payroll tax for a nonprofit is the federal stack every employer runs, withholding, 7.65 percent employer FICA, FUTA, deposits and Form 941, plus the nonprofit items this page cites: IRS, Exempt organizations: What are employment taxes?, IRS, Ministers' compensation and housing allowance (section 107) and IRS Publication 15-A (2026). BEG: $45 per employee per month inside the payroll software you already use, live in 3 to 5 days.
Tax rules specific to nonprofits
An organization exempt from income tax under section 501(c)(3) is also exempt from FUTA, and the exemption cannot be waived. Nonprofits that are not section 501(c)(3) organizations are not exempt and report FUTA on Form 940.
A minister's housing allowance is excludable from gross income for income tax but not for self-employment tax. The exclusion is limited to the lesser of the amount officially designated in advance, the amount actually used to provide a home, or the fair market rental value of the home.
A minister's earnings are not subject to federal income, Social Security, or Medicare tax withholding, even when the minister is a common-law employee of the church. The minister pays self-employment tax on those earnings, and the employer may withhold income tax only under a voluntary agreement with the minister.
The stack every nonprofit runs
On one of the social and community service managers at the May 2025 national median of $80,390, the employer share of Social Security and Medicare is $6,150 a year, FUTA is $42 after the 5.4 percent state credit on the first $7,000, and income tax withholding follows the employee's W-4. Deposits are monthly or semiweekly depending on the prior lookback period, with a next-business-day deposit whenever $100,000 accumulates. Form 941 is due the last day of the month after each quarter; W-2s and any 1099-NEC at the $2,000 threshold are due January 31.
The rules behind this page, with sources
General information, not legal advice. Every rule below was read on the agency page linked next to it.
- An organization exempt from income tax under section 501(c)(3) is also exempt from FUTA, and the exemption cannot be waived. Nonprofits that are not section 501(c)(3) organizations are not exempt and report FUTA on Form 940. [IRS, Exempt organizations: What are employment taxes?]
- A minister's housing allowance is excludable from gross income for income tax but not for self-employment tax. The exclusion is limited to the lesser of the amount officially designated in advance, the amount actually used to provide a home, or the fair market rental value of the home. [IRS, Ministers' compensation and housing allowance (section 107)]
- A minister's earnings are not subject to federal income, Social Security, or Medicare tax withholding, even when the minister is a common-law employee of the church. The minister pays self-employment tax on those earnings, and the employer may withhold income tax only under a voluntary agreement with the minister. [IRS Publication 15-A (2026), section 4]
Read the full guide to how to calculate payroll taxes, and the rest of the nonprofit payroll library.
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Frequently Asked Questions
Nonprofit payroll tax: IRS, Exempt organizations: What are employment taxes?
An organization exempt from income tax under section 501(c)(3) is also exempt from FUTA, and the exemption cannot be waived. Nonprofits that are not section 501(c)(3) organizations are not exempt and report FUTA on Form 940.
Nonprofit payroll tax: IRS, Ministers' compensation and housing allowance (section 107)
A minister's housing allowance is excludable from gross income for income tax but not for self-employment tax. The exclusion is limited to the lesser of the amount officially designated in advance, the amount actually used to provide a home, or the fair market rental value of the home.
What is the employer tax cost on one of the social and community service managers?
At the $80,390 national median (BLS OEWS, May 2025): $6,150 in employer Social Security and Medicare, $42 in FUTA after the state credit, plus state unemployment at the employer's assigned rate.
What does managed payroll cost for a nonprofit?
$45 per employee per month, all-inclusive, inside the payroll software you already use, with no monthly minimum. Grant-funded payroll allocation, clergy housing allowance and FUTA exemptions are configured at setup, not billed as add-ons.
Related Resources
Anthony leads payroll solutions at Business Executive Group, a national managed payroll firm serving businesses across industries including Nonprofits & Religious Organizations. BEG manages payroll at $45 PEPM, all-inclusive, with deep expertise in compliance, multi-state filing, and industry-specific payroll requirements. Get instant pricing at beghr.com.
Authoritative source: IRS: Understanding Employment Taxes
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