Iowa Not-for-Profits and Iowa Unemployment Tax

Image courtesy of user "777546" on
Image courtesy of user “777546” on

Not-for-profits don’t have to pay income taxes (as long as they filed for tax-exempt status). But that doesn’t mean they’re exempt from all taxes, especially at the state level.

For example, not-for-profits that have employees will likely be liable for paying state — but not federal — unemployment taxes.

Federal Unemployment Tax

Tax-exempt organizations are not liable for federal unemployment tax.


Iowa Unemployment Tax

Tax-exempt organizations generally must pay Iowa unemployment tax. See page 7 of the Iowa Unemployment Insurance Handbook for Employers.

A 501(c)(3) organization can opt out of paying Iowa unemployment tax. The problem with this is, if an ex-employee of that organization becomes eligible for benefits, the organization would have to reimburse the state for any benefits paid to that ex-employee.

For that reason, most organizations will want to go ahead and pay unemployment tax.

For most organizations in Iowa, they’ll be paying 1% of wages on the first $28,300 of wages paid per employee per year (so a maximum of $283 per employee per year). That percentage varies from year-to-year and could be 0% if the organization has existed long enough and had no benefits paid against its account.