What Should Employee Associations Know About Form
- Updated August 14, 2023 - 2.00 PM - Admin, Tax990
Any organization that operates toward the furtherance of a charitable cause can obtain an exemption from paying federal income taxes under various IRS sections. For example, organizations such as churches and hospitals are eligible for tax exemption under section 501(c)(3), whereas some organizations can obtain tax exemption under section 501(c)(4).
This article explains how Employee Associations can qualify for federal tax exemption under section 501(c)(4) and exempt filing requirements.
Table of Contents
How Does the IRS Define Employee Associations?
The IRC section 501(c)(4) defines Employee Association as a local association of employees that provides membership only to employees of a designated person or persons in a particular municipality.
The net earnings of these Employee Associations must be devoted exclusively to charitable, educational, or recreational purposes and must not benefit any private shareholder or individual.
The IRC section 501(c)(4) also states that Employee Associations can include individuals who work for different employers.
An employee association will not be considered a local organization if its activities are limited only to the borders of a state.
How can Employee Associations Obtain 501(c)(4)
Employee Associations that are willing to operate as section 501(c)(4) organizations are required to file Form 8976, Notice of Intent to Operate Under Section 501(c)(4) electronically.
If the employee association is intended to operate under section 501(c)(4), it must notify the IRS within 60 days from the date when the organization was formed.
Along with Form 8976, these organizations can also file Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4) of the Internal Revenue Code, to apply for recognition of tax-exempt status. This form must also be filed electronically.
These organizations are required to file Form 8976 even if they file Form 1024-A.
Steps to File Form 1024-A
Register for an account on Pay.gov
Search for "1024-A" in the search box and select it
Complete the form.
Employee associations that carry out activities such as providing a bus for the members’ convenience, paying retirement and death benefits, and providing purchase discounts to members are not qualified for tax exemption under section 501(c)(4).
What are the Tax Filing Requirements for 501(c)(4)
Though 501(c)(4) Employee Associations are exempt from paying federal taxes, they are still required to file Form 990 series annually to stay tax-compliant. The details required on Form 990 by the Employee Associations include their financial information, activities, program services, etc.
The Form 990 series consists of different form variants. Employee Associations are required to choose the applicable form for them based on their gross receipts and assets.
Form 990-N - Applicable to Employee Associations with gross receipts ≤ $50,000
Form 990-EZ - Applicable to Employee Associations with gross receipts < $200,000 and
assets < $500,000
Form 990 - Applicable to Employee Associations with gross receipts ≥ $200,000 (or)
assets ≥ $500,000
Reporting Unrelated Related Business Income
Reporting Additional Information
Along with a 990 form, 501(c)(4) Employee Associations may need to include Schedules for reporting additional information based on their activities, contributions received, and various other aspects.
When is the Deadline for 501(c)(4) Employee Associations to file Form 990?
For Employee Associations that have obtained tax-exempt status under section 501(c)(4), the deadline for filing Form 990 is the 15th day of the 5th month after their accounting period ends, i.e., May 15th for organizations following a calendar tax year.
Operating on a Fiscal Tax Year? Use our due date calculator to find your due date.
The IRS may impose penalties for Employee Associations that fail to file 990 forms on or before the deadline. These organizations may even lose their tax-exempt status if they fail to file 990 forms for 3 consecutive years.
If an employee association needs more time to prepare their 990 return, they can request a 6-month extension by filing Form 8868.
Simply File Your Employee Association’s 990 Form
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