Tax exemption indicates that either an employee or employer is not legally obligated to make contributions to a particular tax. If you designate a tax exemption for an employee or employer in Niural, we will not deduct this tax or include it in your filings.
Types of tax exemptions
Employer Tax Status
As per section 501(c)(3) of the Internal Revenue Code, the IRS stipulates that eligible non-profit entities (like charitable, religious, and political organizations) are exempt from Federal Unemployment Insurance Tax (FUTA). On occasions, certain other employers and employees might also qualify for exemptions from other employment taxes.
Some employers, like religious organizations and specific nonprofit employers, might have the option to repay their state for the unemployment claim benefits disbursed by the state to their laid-off employees. These employers maintain an account with the state and are billed the exact amount of benefits paid to their former employees.
Employee Tax Status
Certain employees might be eligible for specific exemptions from Social Security, Medicare, Unemployment Insurance, and other employment taxes.
This applies to particular visa categories (J-1 and F-1), specific business owners, corporate officers, pastors, etc. If your employee claims an exemption from income tax withholding, ask them to fill out a Form W-4 and select "Exempt from withholding" as their filing status.
Add an employer tax exemption
We highly recommend you consult with a CPA or other tax professional to confirm that your company is tax-exempt before setting this up in Niural.
- Contact Niural from the Support section of your account to let us know about the company exemption.
- Make sure to let us know,
- Name of the exempt tax
- The calendar quarter the tax exemption started being effective (ex. Q1 2023)
- Reason for the tax exemption and supporting documentation
Once done, no wages will be reported for this tax, and Niural won't file for this tax in payroll.
Add an employee tax exemption
If an employee needs to be exempt from income taxes, they should fill out a Form W-4 and select "Exempt from withholding" as their filing status. Just a heads up: The IRS requires this exemption status to be confirmed by February 15 each year.
If you're an employee seeking exemption, let your admin know so they can handle it for you.
We won't withhold tax amounts for your employee in upcoming payrolls starting on the selected effective date.
Remove an employee tax exemption
You can only remove tax exemptions if they're scheduled for the future, or if the employee hasn't been paid yet.
If you need to remove a tax exemption after an employee has been paid, contact us from the Support section of your Niural account.
Fix past payrolls to include a tax exemption
In case you've already processed payroll but missed setting up a tax exemption, we're here to assist in rectifying these prior payrolls.
To change a tax exemption for an employee, reach out to us through the Support section of your account, providing these specifics:
1. Type of tax exemption (employee or employer)
2. Name of the exempted employee (if applicable)
3. Name of the tax subject to exemption
4. The actual date when the tax exemption came into effect
5. Reason for the tax exemption, along with supporting documentation
Our support team will use this information to rectify the payrolls.
Tax exemptions for ministers and clergy
Ministers can receive a housing allowance that isn't counted as taxable gross wages. To set up a housing allowance in Niural:
1. Add the housing allowance as a recurring reimbursement.
2. Choose "Minister housing allowance" under "Reimbursement" to classify it accurately.
Remember, ministers need taxable wages for end-of-year federal filings, along with their housing allowances. Ensure the housing allowance is officially excluded from taxable gross wages. At year-end, any recurring "Minister housing allowance" reimbursements will automatically appear in box 14 of the W-2 form. You can make corrections if needed on the end-of-year checklist.
Tax exemptions for ministers and clergy
Ministers might not have to pay some taxes like Social Security and Medicare. Check out IRS Topic 417 - Earnings for Clergy for details on requesting these exemptions.
Once you're sure the minister is exempt, go to the People section in Niural to set up the tax exemption.