Members of the Board of Directors may receive reasonable compensation for their services and may be reimbursed for actual expenses incurred in the maintenance of their duties
The board decided to pay its members for serving on the board. This board also selected its own members. There was no election or vote by the general membership on who served on the board.
It seems like a nice thing pay board members, right? They probably put in a lot of time and effort to run this homeschool group. What not pay them a bit for serving?
The IRS doesn’t like it.
A homeschool organization can compensate your board for their service, but compensation to officers is taxable income and the board members must be paid as employees. Other board members who are not officers can be paid as independent contractors and given a 1099-MISC.
Did you catch that? If board members are compensated, the IRS laws say they must be paid as employees. That means creating paychecks, paying payroll taxes (Social Security and Medicare), preparing W-2s, quarterly filings with the IRS and your state, and may mean Unemployment and Workers Comp taxes!
Does your homeschool group prepared to manage payroll? My new book Paying Workers in a Homeschool Organization can help with that!
Also because this board appoints itself, it is self-dealing to vote itself compensation. This is what the IRS calls private benefit or inurement and it is forbidden by the IRS. Your organization could lose its tax exempt status if you practice inurement or too much private benefit. The IRS is serious about this!!
What counts as compensation? Here’s some guidance from the IRS
Look at 4) payment of personal expenses, such as paying a hired teacher on behalf of the board member, is taxable compensation.
Reimbursement of expenses is OK, but compensation of board members for their service is taxable compensation.
My advice to this homeschool group was to stop paying board members compensation for serving on the board. Paying board members is complicated, requires they be paid as employees, and is probably illegal for this self-appointed board.
Carol Topp, CPA
Paying Workers in a Homeschool Organization-2nd edition