Managing a nonprofit organization comes with specific obligations. Beyond furthering your mission, compliance is an important administrative duty supporting everything you do. Whether fulfilling state-specific registration requirements or filing documents with the IRS, nonprofit compliance guarantees your company keeps its tax-exempt status and runs legally.
Compliance is not a one-shot event. Nonprofits have to handle two sets of rules: federal and state. State-by-state, the criteria vary greatly and span anything from company licenses to charity soliciting registrations. For companies doing business beyond state boundaries, this may rapidly become a tangle of responsibilities.
There are great stakes here. Ignoring compliance deadlines could result in heavy fines, loss of tax-exempt status, or even reputation harm for your company. These hazards can harm your operations and your capacity to draw contributors, who depend on your reputation to guarantee their donations stay tax-deductible.
Why Does Compliance Matter?
Nonprofit compliance is an ongoing responsibility that touches everything from filing the right forms with the IRS to registering with states where you fundraise. Federal and state rules each have their own nuances, and tackling both can feel overwhelming, especially if your nonprofit operates across state lines.
The problem is that missing a deadline or skipping a requirement isn’t just risky — it can be costly. We’re talking penalties, loss of tax-exempt status, and a ding to your reputation. That could make it harder to attract donors who count on your good standing to ensure their gifts stay tax-deductible.
What To Know About Federal Compliance for Nonprofits
Federal compliance is where it all starts. It’s what keeps your nonprofit’s tax-exempt status intact and helps avoid any unwanted attention (or fines) from the IRS.
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Filing Form 990
Every nonprofit has to file Form 990 annually. This form acts as a public record of your operations.
What you file depends on your organization’s size:
- Form 990-N: For nonprofits with less than $50,000 in annual revenue.
- Form 990-EZ: For those with under $200,000 in revenue and less than $500,000 in assets.
- Form 990: For nonprofits exceeding $200,000 in revenue or $500,000 in assets.
This form isn’t just for the IRS — it’s for potential donors, too. They’ll scrutinize your 990 to get a sense of your governance, spending, and how well you’re fulfilling your mission. Missing the filing deadline could cost you up to $20 a day. And if you skip it for three years in a row? Say goodbye to your tax-exempt status.
Employment Obligations
Does your organization have employees? Then, payroll taxes are part of your compliance to-do list.
The forms you’ll need include:
- Form 941: A quarterly report for wages and taxes.
- Form W-2: The annual wage summary for employees.
- Form 1099-NEC: For independent contractors earning $600 or more.
As a 501(c)(3), your nonprofit is exempt from the Federal Unemployment Tax (FUTA), but state-level unemployment insurance and workers’ comp still apply.
Recordkeeping: Your Compliance Safety Net
Good records are the backbone of compliance. Tracking income, expenses, and donations in a clear, organized way makes filing easier and provides transparency if you’re audited. Plus, it shows funders you’re serious about accountability.
What To Know About State Compliance for Nonprofits
State compliance adds another layer of responsibility, especially if your nonprofit operates or fundraises in multiple states. Each state has its own rules, and they can vary widely.
Here are some key state requirements to consider:
- Charitable Solicitation Registration: Many states require nonprofits to register before soliciting donations. Annual renewals and fees are often part of the process.
- Corporate Annual Reports: Filed with the Secretary of State, these reports confirm your nonprofit’s good standing and update leadership details.
- Business Licenses: If your nonprofit sells goods or services, a business license might be required, along with periodic renewals.
State compliance isn’t limited to the nonprofit’s home state. If your organization fundraises or operates in other states, you’ll likely need to register as a foreign entity in those jurisdictions. Missing deadlines or neglecting state-specific requirements can result in penalties, loss of good standing, or even restrictions on your ability to solicit donations.
The key to managing state compliance is understanding the requirements in each state where you operate, fundraise, or maintain a physical presence. This ensures your nonprofit stays in good standing and avoids unnecessary complications.
Staying Ahead of Compliance
Managing compliance might not be the most exciting part of running a nonprofit, but it’s essential. By staying on top of both federal and state obligations, you protect your organization’s mission and credibility — keeping you focused on what really matters: making an impact.
What Are the Employment Obligations at the State Level for Nonprofit Compliance?
If your nonprofit has employees, state employment rules come into play, and they’re essential for keeping things running smoothly. Payroll tax registrations, workers’ compensation, and unemployment insurance are the big three to know about.
Payroll Tax Registration
Here’s the deal: your nonprofit needs to register with state tax agencies to handle income tax withholdings for your team. Some states even add local tax requirements, so it’s worth double-checking what applies in your area.
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Workers’ Compensation Insurance
Workers’ comp isn’t optional in most states. It’s there to protect employees if they’re injured on the job — and it shields your nonprofit from liability. Some states, like Washington, have unique rules.
Washington nonprofits must purchase workers’ comp insurance directly from the state, while most others let you choose a private insurer. Knowing these quirks can save time and money.
Unemployment Insurance
Even though 501(c)(3) organizations are exempt from federal unemployment taxes (FUTA), you’ll still need to register for state unemployment insurance.
How To Manage Multi-State Operations
Expanding into multiple states sounds great, but compliance? That’s where things can get tricky. Every state has its own rules, deadlines, and paperwork. If you’re not careful, missed obligations can lead to fines or even limit your fundraising activities.
One key requirement is foreign qualification. This registration is a business decision for your organization and is what allows a nonprofit incorporated in one state to legally operate in another. For example, if your nonprofit is based in California but fundraises in New York, you’ll need to register as a foreign entity in New York.
Here’s how to make multi-state compliance manageable:
Centralize Your Records
Maintain organized records of all registrations, deadlines, and filings across states. This can help you track what’s required and when.
Use Compliance Tools
Platforms designed for nonprofits can automate reminders and track varying state requirements.
Leverage Technology
Use compliance management tools to automate reminders, track deadlines, and streamline filings.
Delegate Responsibility
Assign someone on your team — or hire an expert — to stay on top of compliance tasks.
Yes, it’s a lot, but staying organized can make it manageable. And when compliance is under control, you can focus on the bigger picture.
In the next section, we’ll explore how nonprofit boards play a critical role in overseeing compliance and maintaining the organization’s good standing.
What Is Your Board’s Role in Compliance?
Your nonprofit’s board isn’t just there for big-picture strategy — they play a key role in compliance, too. The board is legally responsible for ensuring the organization meets its obligations, from federal filings to state requirements.
The treasurer often takes the lead on compliance, keeping an eye on deadlines, overseeing financial records, and ensuring filings like IRS Form 990 are accurate and on time. But this isn’t a one-person job. Compliance should be a team effort, with the board reviewing key documents and adopting policies that support ongoing accountability.
A proactive, informed board doesn’t just protect the nonprofit’s tax-exempt status but builds trust with donors and stakeholders. When compliance is a shared priority, the board can focus on advancing your mission without worrying about avoidable mistakes.
Next, let’s explore how you can make sure you’re staying compliant without getting caught up in all the stress that can and often does come with it.
How To Stay Compliant
There’s no doubt that staying compliant can feel overwhelming. However, with the right strategies, it doesn’t have to be. Staying organized, leveraging the right tools, and fostering a team-wide commitment to compliance can make all the difference.
By breaking it down into manageable steps and using resources like automated platforms or expert guidance, your nonprofit can focus on what matters most — achieving your mission while staying fully compliant.
Build a Strong Foundation With Recordkeeping
Good recordkeeping is your secret weapon. Keep track of everything — financial transactions, donor contributions, payroll data, and program outcomes — in an organized way. Tools like nonprofit-focused accounting software can make this process easier, automating financial tracking and reducing the risk of errors.
Let Technology Do the Heavy Lifting
Compliance platforms can track deadlines, send reminders, and even handle filings. If your nonprofit operates in multiple states, these tools can help you keep up with varying requirements and notify you when something changes.
Make It a Team Effort
Assign clear responsibilities to your team. Whether it’s managing filings or reviewing reports, everyone has a role to play. Shared accountability means fewer missed deadlines and more focus on your mission.
When compliance becomes part of your routine, it’s less of a hassle and more of a safeguard. Stay organized, use the right tools, and make it a team priority — you’ll be ready to meet every requirement with confidence.
Why Are Frequent Compliance Audits Important?
Compliance audits give your charity a check-up. They enable you to identify minor concerns before they become major ones — such as revoked statuses or fines. Reviewing your files, registrations, and procedures can help ensure that everything is current and satisfies the most recent criteria in a compliance audit.
You could bring in outside counsel or manage these audits internally. Both strategies have value, but outside consultants provide a different perspective. They can find holes your staff may overlook and specialize in nonprofit compliance.
How Mosey Simplifies Payroll Compliance
For nonprofit organizations, handling payroll compliance across many states can take up a lot of time. Mosey provides tools and knowledge that simplify meeting your responsibilities, removing the guesswork from state and local payroll compliance regardless of your staff’s location.
Automate payroll tax account registration in any state with Mosey so you open the right set of accounts at the right time. Mosey creates a smooth data flow by integrating directly with your payroll provider, bridging the gap between your payroll system and compliance needs.
The platform also serves as a consolidated center for handling alerts, log-in access, and important documentation. Features like digital mail delivery and safe storage for agency accounts let NGOs quickly monitor compliance changes and distribute data across teams, therefore lowering the risk of lost papers or missed deadlines.
Simplifying difficult procedures with Mosey enables NGOs to save time, save expenses, and keep confident compliance. Ready to simplify payroll compliance for your nonprofit? Book a demo with Mosey to find out how our platform can help.
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