Lori Meadows
Student organizations are required to operate as non-profit entities, meaning they should not generate income for individuals or the organization itself. However, this does not automatically qualify them for tax-exempt status. Student groups that are part of a broader national organization, such as a religious group, fraternity, or sorority, are often covered by their parent organization's tax exemption. To achieve tax-exempt status independently, student organizations must apply through the Internal Revenue Service (IRS), which is a complex and lengthy process. While student organizations may be exempt from certain taxes, they can still be liable for sales tax on some fundraising efforts and may need to pay employment taxes if they employ students. Understanding tax obligations is crucial for student organizations to maintain compliance with federal and state tax laws.
| Characteristics | Values |
|---|---|
| Student organization tax exemption | Student organizations are not automatically tax-exempt and must apply for this status. |
| Tax-exempt status application | The process is complex and cumbersome, and a specialist attorney is recommended. |
| Tax-exempt status requirements | The organization must be a non-profit that does not generate income for individuals or itself. |
| Tax ID number | A Taxpayer Identification Number (TIN) is required for tax-exempt entities. |
| Employer Identification Number (EIN) | Required for opening a bank account, receiving funding, and other purposes. |
| Tax forms | Form 1023 or 1024 is required for tax-exemption application. Form 990-T is required for unrelated business income tax returns. |
| Sales tax | Student organizations may be liable to pay sales tax on certain fundraising efforts and sales of items. |
| Tax on wages | Student organizations that employ individuals and pay wages are responsible for federal and state employment taxes. |
| Tax reporting | Student organizations must complete a 1099-MISC reporting form if they paid an individual or unincorporated business more than $600 in a tax year. |
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What You'll Learn
Student organizations and tax-exempt status
Student organizations are required to operate as non-profit entities that do not generate income for individuals or the organization. However, they are not automatically registered as 501(c)3 organizations and do not inherently possess tax-exempt status. To attain tax-exempt status, student organizations must apply through the United States Internal Revenue Service (IRS), a process that can be complex and cumbersome. The IRS determines the tax-exempt status of student organizations during their application for a Taxpayer Identification Number (TIN). If granted, the IRS provides written confirmation of tax-exempt status.
Student organizations that are part of a broader national or central organization, such as a religious group, veterans' organization, or fraternity/sorority, should refer to their central organization to ascertain if they are covered by a group exemption letter. If so, the student organization is recognized as tax-exempt and need not seek separate tax-exempt recognition.
Student organizations that are tax-exempt are generally exempt from income taxation but may be subject to taxes on unrelated business income, including income from non-members. Additionally, they must file annual returns of their income and expenses with the IRS. If a tax-exempt organization's gross income from an unrelated business exceeds $1,000, they must file Form 990-T and pay federal income tax.
Student organizations must be cautious about their fundraising efforts, as they may be liable to pay sales tax on certain activities, such as amusement services, ready-to-eat food items, and the sale of items for resale. University and college student organizations are exempt from sales tax if their sale of taxable items occurs only once a day and not more than once a month.
It is important to note that student organizations should not use an individual's social security number for their bank account, as the funds may be treated as the individual's assets, and any earnings will be considered the individual's income for tax purposes. Instead, student organizations should obtain an Employer Identification Number (EIN) or a TIN, which is required for opening a bank account and receiving funding.
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Paying taxes on fundraising efforts
Student organizations must be aware of their liability to pay sales tax on certain fundraising efforts. Even if an organization has a tax-exempt number, sales tax must be collected on specific items and services, such as amusement services (recorded or live performances, movies, exhibits, etc.), ready-to-eat food, items for resale (posters, t-shirts, etc.), and rental of personal property.
University student groups are exempt from taxes if their sale of taxable goods lasts only one day and occurs no more than once per month. All proceeds from these sales must benefit the organization and not individual members. To maintain tax exemption, the organization must file a certificate with the state and prove its affiliation with an educational institution.
Student organizations that sell items more than once a month or for longer than one day must obtain a tax certificate number and pay sales tax. These groups do not inherently qualify for IRS tax-exempt status and must apply for it separately. National fraternities and sororities are often tax-exempt under their parent organizations and should consult them for guidance. Other groups with national affiliations may also be tax-exempt and should check their status with the national office. Groups without national affiliations are unlikely to be tax-exempt unless they have applied directly to the IRS.
To apply for tax-exempt status, organizations must navigate complex and ever-changing laws and procedures, often requiring the expertise of an attorney. If successful, the organization would likely be classified under 501(c)(3) or 501(c)(7) of the IRS tax code and file Form 1023. Organizations primarily supporting a university department may qualify under 501(a) and would file Form 1024. The application process can take at least six months, and a $275 fee is typically required for Form 1023-EZ.
Additionally, student organizations must include a statement of non-deductibility in their fundraising solicitations. This statement clarifies that donors cannot claim contributions as deductible for federal income tax purposes. While not mandatory, providing donors with written acknowledgment of their contributions can assist in claiming tax deductions.
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Employer Identification Numbers
Student organizations are generally considered non-profit entities and, as such, are often exempt from paying taxes. However, they may still need to file certain tax forms and comply with specific requirements. One such requirement is obtaining an Employer Identification Number (EIN), also known as a tax ID.
An EIN is a unique number that identifies an organization to the Internal Revenue Service (IRS). It is required for various purposes, including opening a bank account and receiving funding from the Office of Student Engagement. Even organizations without employees must obtain an EIN.
To apply for an EIN, student organizations should use Form SS-4, which can be submitted online, by mail, by fax, or by telephone if the organization was formed outside the U.S. or its territories. It is important to note that student organizations should only apply for an EIN after they are legally formed, as failing to file required returns or notices for three consecutive years can result in automatic revocation of tax-exempt status.
While having an EIN is essential for certain administrative tasks, it does not indicate tax-exempt status. That status is typically indicated by a separate number assigned by a state agency, specifically identifying an organization as exempt from state sales and use taxes.
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Tax forms and filing
Student organizations are required to operate as non-profit entities that do not generate income for individuals or the organization itself. However, they are not automatically registered as 501(c)3 organizations and do not automatically receive tax-exempt status. If a student organization wishes to apply for tax-exempt status, it typically falls under sections 501(c)(3) or 501(c)(7) of the IRS tax code and requires filing Form 1023. The process is complex and may take over a year, so it is recommended to engage an attorney specializing in this area.
Student organizations must be mindful of their liability to pay sales tax on certain fundraising efforts, even if they have a tax-exempt number. Sales tax is applicable on items like amusement services, ready-to-eat food, items for resale, and rental of tangible personal property. If the sales occur only once a month and last for one day, the organization is exempt from taxes, provided that all proceeds go to the organization and not individuals.
When it comes to tax forms and filing, student organizations must be aware of the following:
- If an organization is tax-exempt, it must provide its tax-exemption number when opening a bank account.
- To obtain a tax ID number (also known as an Employer Identification Number or EIN), the organization can fax a request to the IRS, which will provide Form SS-4 to complete and return.
- Student organizations must not use an individual's social security number for their operations, as it could lead to the individual's liability for income tax.
- When paying individuals, student organizations must use the IRS-assigned Taxpayer Identification Number (TIN) and not the individual's social security number. If they cannot provide a W-9 with an IRS-assigned TIN, the university may be required to withhold 24% backup tax.
- If a student organization has paid an unincorporated business or individual more than $600 in a tax year from its bank account, it must complete a 1099-MISC reporting form.
- If a student organization is part of a broader national or central organization, it should check if it is covered by a group exemption letter. If so, it is recognized as tax-exempt and does not need to seek separate tax-exempt recognition.
- If a student organization is tax-exempt under IRC Section 501(a) but has gross income from an unrelated trade or business of $1,000 or more in a year, it must file Form 990-T and pay federal income tax.
- Tax-exempt employers may need to provide federal and state information returns (Forms W-3, W-2, etc.) to direct workers and file them with the appropriate taxing authorities.
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Tax-deductible donations
Student organizations that are part of a broader national or central organization, such as a religious group, a veterans' organization, or a fraternity or sorority, may be covered by a group exemption letter from the central organization. This means they are recognized as tax-exempt and do not need to seek separate tax-exempt recognition from the IRS. However, if a student organization is not exempt, it may still be able to receive tax-deductible donations if it is registered as a non-profit organization.
To be considered a tax-deductible donation, the contribution must be made to a qualified organization, and there are certain requirements that must be met. For example, the donor must obtain a written acknowledgment from the organization, which includes a statement that no goods or services were provided in return for the contribution. Additionally, the donation must be made from the student organization's bank account directly. If the student organization has paid an individual or unincorporated business more than a certain amount, such as $600, in a tax year, they must complete a 1099-MISC reporting form.
It is important to note that social clubs, which are a type of tax-exempt organization, may be exempt from federal income taxation if they meet specific requirements, such as being organized for exempt purposes, having limited membership, and being supported by membership fees, dues, and assessments. However, social clubs are generally required to file annual returns of their income and expenses with the IRS and may be taxed on unrelated business income, such as income from non-members.
Student organizations should consult with a tax professional or the IRS directly to understand the specific requirements and restrictions for tax-deductible donations, as there may be additional considerations or exceptions.
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Frequently asked questions
Student organizations are required to operate as non-profit organizations that do not generate income for individuals or the organization itself. However, they are not automatically registered as tax-exempt and must apply for this status. Student organizations may be liable to pay sales tax on some fundraising efforts and sales of items.
Student organizations are not inherently tax-exempt entities. If you are unsure whether your student organization qualifies for tax-exempt status, you should contact the IRS local office. If your organization is a subordinate controlled by a central organization (e.g. a religious group or fraternity), check with them to see if they have a group exemption letter that covers your organization.
If your student organization is tax-exempt, you must provide your tax-exemption number when opening a bank account. When soliciting contributions, include a statement that payments are not deductible as charitable contributions for federal income tax purposes. Additionally, ensure that you comply with any requirements for annual returns and unrelated business income restrictions.
