Nonprofit Unemployment Basics

Posted by: Carrie Minnich

• Like other employers Indiana nonprofits are subject to state unemployment tax; however, 501(c)(3) organizations are exempt from federal unemployment tax.

• The Indiana Department of Workforce Development requires nonprofit organizations employing 4 or more individuals for some portion of a day in each of 20 different weeks during the calendar year to pay Indiana unemployment tax. There is no minimum dollar amount required.

• Employees working for a nonprofit that has less than 4 employees are not entitled to collect unemployment.

• Once an organization becomes a qualified employer, it will continue to be required to pay unemployment. The organization may be able to discontinue paying unemployment if the number of employees drops below 4 by writing a letter to the Department of Workforce Development stating this fact.

• Nonprofits may choose to be a reimbursable employer. Instead of making regular premium payments, the organization reimburses the fund for benefits paid to former employees. To become a reimbursable employer, the nonprofit must provide a copy of its IRS 501(c)(3) exemption letter and complete DWD Form 1065, Election to Pay. Once a nonprofit becomes a reimbursable employer, the status remains in effect for 2 full calendar years.