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IRS Form 990 Filing Requirements for Employee Associations- Updated May 13, 2021 - 8.00 AM - Admin, ExpressTaxExempt
IRS recognizes the Organizations under the section 501(c)(3) as tax-exempt. This type of Organization does not pay income tax on its earnings or on the donations it receives. But the Organizations need to file the activities of the Organization with the IRS.
This article further explores the requirements for charity activities, applying for a tax-exempt status, filing requirements, and more.
Table of Content
1. What is the Employee Association?
Employee associations are organizations that provide memberships only to employees in a particular municipality whose net earnings are donated for charitable, educational, or other similar purposes. These organizations are considered as social welfare organizations and are tax-exempt under section 501(c)(4) of the IRS. The earnings of these employee associations must not benefit any shareholder or individual.
An organization must be a purely local character to be an employee association. For an organization to be of a local character its operations and activities must benefit and should be limited only to a particular district, place, or community. This must be irrespective of the political subdivision, the organization will not be considered as a purely local character if the activities of the organization are limited within the state.
The employee association must consist of employees working for the same or different employers but in the same locality or community. The residence of the employees is not important, but the location of the employment of these workers must be the same for them to form a local employee association.
2. Examples of Employee Associations
The local employee association comprises employees from one particular community. These employees come together to form employee associations like the Workers Union. These associations are not limited to only a particular purpose, they work for the social welfare of a community and provide help and contributions through various charitable purposes. Preservation of natural resources, trade, recreation, education, health, municipal roads are a few of the purposes that are carried out in a particular location by these Employee Associations. Associations that operate to eradicate discrimination, reduce the problems of the community, defend the human and civil rights are also considered as Employee Associations.
3. Unique Non-Profit activities
The local employee associations are exempt from taxes under section 501(c)(4). These are social welfare organizations that donate the net earnings of the employees of this organization for charitable purposes. Organizations that work only for the benefits of its members cannot be considered for the exemption of taxes. Similarly, an association that follows a system of paying retirement benefits and other similar benefits for its members will also not be eligible for tax-exemption as these activities are not charitable purposes.
Unlike Section 501(c)(3) organizations, Section 501(c)(4) organizations can operate with lobbying as its primary purpose and avoid losing its tax-exempt status. Lobbying is considered as a process that allows an organization to consult with the legislation to pass laws that accommodate the organization’s activities. This can be considered as a purpose of attaining social welfare and therefore, the employee associations are allowed to take up lobbying as a primary purpose.
Section 501(c)(4) organizations are also allowed to engage in political activities as far as it is not considered as their primary purpose. But these associations may be subject to taxes on the expenses made on the political activities.
4. 990 filing requirements
The employee associations are social welfare organizations that are exempted from taxes under Section 501(c)(4). These associations are required to apply for recognition as a Section 501(c)(4) organization to be exempt from taxes. Employee associations are required to file Form 8976 to be recognized as section 501(c)(4) organizations. The employee associations are required to file the Form 990 series on an annual basis to retain their tax-exempt status.
The filing of Form 990 depends upon the gross receipts of the local employee association:
Employee associations that have gross receipts of $50,000 or less can file a Form 990-N (e-Postcard) if they chose not to file Form 990 or Form 990-PF. Employee associations whose gross receipts vary from year to year can file a Form 990-N if the average of their gross receipts is $50,000 or less for the previous three consecutive years.
Employee associations whose gross receipts are less than $200,000 and total assets less than $500,000 at the end of the taxable year are supposed to file Form 990-EZ.
Employee associations whose gross receipts are equal to or higher than $200,000 and total assets equal to or greater than $500,000 at the end of the taxable year are supposed to file Form 990.
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