Nonprofit Accounting Basics

Withholding

Payroll Tax: Withholding of employee state income tax is a requirement in most states with an individual income tax. The requirements for withholding can be complex for employees that reside in a state outside of the organization home state. Additionally, in a payroll audit, states (just like the IRS) will take a close look at whether independent contractors are actually employees controlled by the organization. Thus it is important that a careful analysis be made to determine if a contractor is not actually going to be considered an employee under both Federal and state law. The IRS has established guidelines for making this determination.