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State unemployment tax: nonprofit organizations vs. churches/religious organizations

We recently received a question about state unemployment tax, and I want to pass on Senior Tax Associate Carla Medrano’s answer in the interest of all readers. Here is the question:

“Are religious non-profits in the state of Texas exempt from state unemployment tax?  My experience is that non-profits [501(c)(3)s] are not exempt from state unemployment tax even if they are religious organizations.  An example might be a school that is a 501(c)(3), based on a particular denomination, but legally not part of a particular church or owned by a denomination.  (Churches are exempt from state unemployment in the state of Texas, correct?)”

Nonprofit organizations with a 501(c)(3) tax exemption are subject to state unemployment tax, unless they are a church or religious organization. In the example above, the school would be subject to paying state unemployment tax, but the church would not. From the Texas Workforce Commission:

The Texas Unemployment Compensation Act (TUCA) requires liable Texas employers – including sole proprietorships, partnerships, corporations, and other entities registered with the Secretary of State – to pay UI tax. Employers become liable if they:

  • Pay at least $1,500 in wages in any one calendar quarter during the current or preceding calendar year, or
  • Employ at least one worker for part of a day or more each week for 20 weeks during a year, or
  • Acquires or otherwise receives, through any means, all or part of the organization, trade, business, or workforce of a subject employer, or
  • Are a 501(c)(3) nonprofit organization (excluding churches and religious organizations) and have at least four employees for part of a day or more each week for 20 weeks, or
  • Elect to become a subject employer, or
  • Have Texas employees and are subject to the Federal Unemployment Tax Act (FUTA), or
  • Are a state political subdivision or instrumentality, or
  • Pay $1,000 or more wages one calendar quarter for domestic service, or
  • Employs three (3) employees for 20 weeks in a calendar year or pays $6,250.00 in cash wages in a calendar quarter, or
  • Employ a seasonal worker on a truck farm, orchard or vineyard, or
  • Employ a migrant or a seasonal worker(s) who works for a farmer, ranch operator, or labor agent who employs migrant worker(s).

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