[US] Tax exemption for 501(c)(3) organizations

If you are a non-profit organization and have applied, and been approved for 501(c)(3) status, the IRS considers your business exempt from federal unemployment tax (FUTA).

In this article

What is a 501(c)(3) business?

501(c)(3) businesses are non-profits, associations and groups that include churches, social clubs, civic leagues, and other groups that are organized and operated exclusively for religious, charitable, educational, or other specified purposes. These organizations must meet certain other requirements under the Internal Revenue Code Section 501(c)(3).

Payments for services performed by an employee of a religious, charitable, educational or other organization described in section 501(c)(3) that are generally subject to FICA (Social Security and Medicare) taxes if the payments are $100 or more for the year, are not subject to FUTA (unemployment) taxes.

—Read more about section 501(c)(3) organizations

Most organizations need to apply for recognition of section 501(c)(3) status with the IRS. Learn more here. When the IRS confirms your organization's 501(c)(3) status, your organization is exempt from Federal Unemployment Taxes and won't be required to file the annual Form 940.

When the IRS confirms your organization's 501(c)(3) status, you are responsible for contacting Wave, to ensure that your exemption is properly applied.

Steps to take in Wave

Step One: Select non-profit type of business
When you create your business in Wave, we’ll start by asking you to enter some basic information so that Wave is customized to your needs. If you are classified as 501(c)(3), select Type of Business: Non-profits, associations & groups. If you already have created your business, move on to Step Two below, even if you chose a different 

Step Two: Update your Wave Payroll account 
If the IRS has approved your organization for 501(c)(3) tax-exempt status, here's how to update your account and ensure your Federal Unemployment Tax exemption is applied accurately:

  1. Click Settings > Click Tax Profile
  2. Under Internal Revenue Service > Locate Settings for Federal Unemployment Tax
  3. Click Contact Wave Support to submit your request

If you follow the steps above but don't see Contact Wave Support, click the help button in the bottom right corner of your account to access Wave’s support chatbot Mave. Mave can connect you to support who can assist with your request.