Nonprofit Trends Show More Agencies Opting Out of the State Unemployment Tax System. But Will They Benefit?

As the nation’s unemployment rate remains at an unsettling 9.6 percent, an increasing number of 501(c)(3) organizations are taking advantage of an exclusive opportunity to opt out of the state unemployment tax system. However are all of these nonprofits benefiting?

According to a federal law enacted in 1970 (IRC Title 26, Chapter 23 §3309(a)(2)), nonprofits can instead elect to reimburse their state only when a former employee collects unemployment benefits. Many 501(c)(3)s can save significantly by directly reimbursing the state in lieu of paying into the unemployment tax system.