If you were told to stop using the nonprofit postal rate, that would seem like strange advice wouldn’t it? Since Congress and the U.S. Postal Service specifically provide a special rate for nonprofits to send their mail, clearly most eligible organizations gladly opt to pay less.
However, there is another alternative provided under federal law that many nonprofits are not currently using to their advantage – even though it could save them thousands of dollars.
Section 3303(e) of the Internal Revenue Code allows nonprofit organizations to opt out of the state unemployment insurance (UI) tax system, and instead reimburse the state only for the unemployment benefits paid out to their own former employees – dollar for dollar.
Given the choice, most for-profits would jump at this opportunity because employers that pay into the state UI system typically pay about $2.00 in taxes for every $1.00 paid out in benefits. But only 501(c)(3)s can opt out and become a “reimbursing” employer.
Nonprofits are getting smarter and savvier after the financial crisis… This is one cost they’re learning they can save on,” says Donna Groh, Executive Director of the Unemployment Services Trust (UST), a group of more than 2,100 nonprofits that have decided to opt out of the state UI system and take advantage of expert claims management.
UST helps evaluate (for free) whether a nonprofit with 10 or more employees is a good fit for this option and the UST Program. Says Groh of the 400 Unemployment Savings Evaluations processed by UST last year:
“We identified over $6 million that nonprofits were overpaying into the state tax system. That’s money they could be putting into their programs.”
Most states only allow nonprofits to exercise this alternative once annually, typically by November 30. You can get your own Savings Evaluation from UST for free at www.chooseust.org/eval.