Do the new overtime rules affect homeschool groups?

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The US Department of Labor (DOL) proposed new rules about paying workers overtime. Several people have asked me if homeschool organizations have to follow these new rules.

My answer is that yes, in general, homeschool organization whether nonprofit organizations or for-profit businesses have to follow the rules in the Fair Labor Standards Act (FLSA) regarding minimum wage and overtime.

But occasionally, there are exceptions, so read on!

New Overtime Rules

The new overtime rules were supposed to take effect December 1, 2016. (They been held up by an injunction by a federal judge). The new proposed rules raise the threshold for when an employee is exempt from getting paid overtime. If your employee makes less than $47,476/year, you must pay them overtime at time-and-a-half when they work more than 40 hours a week. The threshold used to be only $23,660/year, so this was a big jump. Under the new proposed rule many more workers are eligible for overtime.

The impact on nonprofits and churches of paying overtime could be huge since many of their employees put in more than 40 hours a week. They work long hours because they are passionate about their mission. Fortunately, the Department of Labor has an exception to the FLSA for nonprofit organizations.

Exceptions to New OT Rule for Nonprofit Organizations

Here’s an except from”Overtime Final Rule and the Non-Profit Sector” a paper from the US Department of Labor available at https://www.dol.gov/sites/default/files/overtime-nonprofit.pdf

the FLSA applies to businesses with annual sales or business of at least $500,000. For a non-profit, enterprise coverage applies only to the activities performed for a business purpose (such as operating a gift shop or providing veterinary services for a fee); it does not apply to the organization’s charitable activities that are not in substantial competition with other businesses. Income from contributions, membership fees, many dues, and donations (cash or non-cash) used for charitable activities are not counted toward the $500,000 threshold.

Let me unpack that for you.

If your nonprofit has less than $500,000 in “business” income (that does not count your contributions, membership fees or dues), then your organization is not covered under FLSA and you do not need to comply with the overtime rules.

Here’s an example from a longer DOL document, “Guidance for Non-Profit Organizations on Paying Overtime under the Fair Labor Standards Act.” available at https://www.dol.gov/whd/overtime/final2016/nonprofit-guidance.pdf

A non-profit animal shelter provides free veterinary care, animal adoption services, and shelter for homeless animals. Even if the shelter takes in over $500,000 in donations in a given year, because the shelter engages only in charitable activities that do not have a business purpose, employees of the animal shelter are not covered on an enterprise basis.

By “not covered on an enterprise basis,” the DoL means the FLSA does not cover the workers and they are not entitled to overtime.

A lot of homeschool nonprofit organizations just breathed a sigh of relief. They rarely have business income and it almost never exceeds $500,000, so they do not have to pay their employees overtime.

Warning: It’s not as simple as it seems!

This issue is not as simple as saying, “My nonprofit doesn’t have $500,000 income, let alone “business” income, so we don’t have to pay any employee overtime.”

I urge you to read the DoL documents I mentioned above and consult with an experienced professional familiar with employee laws and the Fair Labor Standards Act in particular.

The Kentucky Nonprofit Network offers a helpful 9-page report on steps to take if your nonprofit is affected by the new overtime rules (when and if they go into effect).

Carol Topp, CPA

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Can a homeschool group pay a volunteer?

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This is an excerpt from my update book, Paying Workers in a Homeschool Organization

“Can we pay our homeschool co-op director? She works so hard.”

Yes, your homeschool organization can pay someone who works for the organization, but the pay must be reported to the Internal Revenue Service (IRS). The reporting responsibility will be on both the homeschool organization and the worker. Additionally, the organization will have to determine of the worker is an employee or an independent contractor. Other chapters in this book explain the required reporting and worker classification.

Instead of paying a worker, your homeschool organization can show appreciation to a volunteer in a variety of ways, but they may have tax consequences such as:

  • Reduced fees or tuition. Reduced tuition for classes or for a homeschool co-op fee is a nontaxable fringe benefit if it is insignificant (more on that in the book). If the tuition reduction is significant the value of the tuition is taxable income to the volunteer.
  • Gift cards, but they could be taxable income to the recipient if the cards are a replacement for payment for services and not a true gift.
  • Non-cash gifts such as flowers, books, a coffee mug or chocolate are excellent ways to express appreciation and are tax-free to the volunteer.

I’ll discuss each of these types of compensation (reduced fees, gift cards and non-cash gifts) to a volunteer in detail … (you’ll need to buy the book to read the details!)

Carol Topp, CPA


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Paying Workers in a Homeschool Organization-2nd edition

$9.95 paperback
130 pages
Copyright 2017
ISBN 978-0-9909579-3-5

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Are discounts to homeschool board members taxable compensation?

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My homeschool group gives a fee waiver of our dues to our board officers. Would that discount be reported to our officers as taxable compensation?

Melissa

 

Melissa,

This is an excellent question because I’ve encouraged homeschool groups to offer discounts on membership fees to their volunteers or board members as a way to show appreciation.

The IRS defines compensation as:

compensation includes salary or wages, deferred compensation, retirement benefits…, fringe benefits (personal vehicle, meals, lodging, personal and family educational benefits, low interest loans, payment of personal travel, entertainment, or other expenses, athletic or country club membership, and personal use of your property), and bonuses.[i]  (emphasis added)

[i] Instructions for Form 1023 https://www.irs.gov/instructions/i1023/ch02.html#d0e1909

 So, free or reduced fees that are educational benefits is taxable compensation to your board members.

So here’s my advice:

  • Keep your fee waivers to board members small and insignificant. The IRS does state that insignificant benefits to volunteers is not taxable income.
    • I can help you determine if your fee waivers or discounts are “insignificant.” Just contact me.
  • Consider showing appreciation with noncash gifts such as food, chocolate, or flowers. Buy resources to make their jobs easier including helpful books, hiring a payroll company (your treasurer will love it!), accounting software, etc.
  • Have the amount of fee waivers decided by a separate, independent committee or put it to the vote of the full membership. The board should not vote themselves a fee waiver. It’s a conflict of interest.
  • Add a provision to your bylaws allowing a small fee waiver (or tuition discount) to board members or other volunteers. Consider granting a percentage discount instead of a dollar amount such as 20% off the fee.

 


Have more questions about compensation to board members in your homeschool organization?

payingworkerscoveroutlined

Paying Workers in a Homeschool Organization-2nd edition

$9.95 paperback
130 pages
Copyright 2017
ISBN 978-0-9909579-3-5

BuyPaperbackButton

 

Carol Topp, CPA

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Aplos Accounting for Nonprofits: Better Than Quickbooks?

 

I just read a review of Aplos Accounting by Vickey from FreeChurchAccounting.com.

She writes,

One of the great things about Aplos software is that it is made specifically for nonprofits and churches. Aplos was designed by a CPA/Executive Pastor so each section of the software was made with a non-accountant in mind so it’s simple to manage you organization’s accounting even if you don’t have any accounting experience!

Aplos software is set up like a check register so entering transactions is just like entering payments and deposits in your checkbook. You can also import your transactions through the bank integration module.

Read Vickey’s full review of Apolos.

The software is cloud-based, not desktop-based so it’s easy for a new treasurer to take over. It’s also possible for several people to access the financial records including an accountant (like me) who may help your organization prepare the annual IRS Information Return, Form 990.

Apolos charges $25/month and Vickey offers a 25% discount for the first 6 months.

They also offer a Quickbooks buyback program.

Check out Apolos Accounting with a 15 day trial.

 

Carol Topp, CPA

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New website for filing IRS Annual ePostcard Form 990-N

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The Internal Revenue Service (IRS) is changing the website to file the Form 990-N. The Form 990-N used to be hosted by the Urban Institute, but starting February 29, 2016, the IRS will host the Form 990-N submission website.

The new website is www.IRS.gov/990N

The Form 990-N is a short,  annual filing that small (those normally with annual gross receipts up to $50,000) tax-exempt organizations file in place of the lengthier Form 990-EZ or Form 990. In order to file the Form 990-N, all nonprofits will be required to complete a one-time registration and file Form 990-N submissions through the IRS’s website at www.IRS.gov/990N.

Who must file
Most small tax-exempt organizations whose annual gross receipts are normally $50,000 or less can satisfy their annual reporting requirement by electronically submitting Form 990-N if they choose not to file Form 990 or Form 990-EZ instead.

Exceptions to this requirement include:

Form 990-N is easy to complete. You’ll need only eight items of basic information about your organization.

Will a nonprofit owe taxes on income from selling ads?

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We considering including advertising in our conference brochure. Can we consider this conference (exhibitor) income? Or is it UBI (Unrelated Business Income)?
We are also considering placing advertising in our magazine (and our website). Is this UBI? And how do we track it? And how do we report it? And what percent taxes would we pay on it?
Dorothy in OR
Dear Dorothy,
Advertising revenue is definitely Unrelated Business Income (UBIT) in the eyes of the IRS, because selling ads is not related to your tax exempt purpose (education), but you can avoid paying taxes on the unrelated business income in several ways.

The IRS offers several exceptions to UBI Tax (UBIT):

  1.     A $1,000 threshold allows that the first $1,000 in income from an unrelated business will not be taxed.
  2.     If the fundraiser (or unrelated business) is run substantially by volunteer efforts (i.e., no paid staff) then the proceeds are not taxed.
  3.     If the fundraiser is not regularly carried on, such as a once-a-year spaghetti supper, then the proceeds are not subject to UBIT.
  4.     If you are selling donated items, like in a garage sale, the income raised is not taxed.

I think #1 or #2 will apply to your group, so can get income from advertising without worrying about paying tax on it.

It’s a good idea to create a line item in your record keeping labeled “Advertising Income” so it’s clearly differentiated from other income.

Carol Topp, CPA

Homeschool leader collecting donations without tax exempt status.

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Our homeschool group leader just opened a Paypal account and has begun asking for donations. This seems a little weird and as though we need to be a nonprofit if money is collected from members. I referred her to your website, but she believes we have nothing to worry about. Is this true? Should we be a nonprofit if money is involved? How can I help her understand the ramifications of not using your resources?
Randi

Randi,

Thank you for contacting me.

Oh dear, your leader thinks she has nothing to worry about! It’s just not that way anymore!

Whenever an organization collects money from either member dues or donations, the leaders have a fiduciary responsibility for managing that money properly. If they do not manage the money properly or get organized properly with the IRS, the leaders can be held personally liable for any mistakes.

This blog posts explains the fiduciary responsibility of leaders: http://homeschoolcpa.com/what-are-the-legal-responsibilities-of-homeschool-leaders/

An organization cannot accept tax deductible donations unless they have 501(c)(3) tax exempt status from the IRS. Most homeschool groups collect membership dues, but those are not “donations” and they should not be called donations.

How can you help your leader be more responsible? Explain that if your group is not properly organized then the money she is accepting will be seen as her taxable income by the IRS and she will have to pay taxes on it!

To get properly organized start by reading a few of my blog posts and articles.

This quick video may help as well: https://youtu.be/FLvfw23z7M0

Good Luck!

Carol Topp, CPA
HomeschoolCPA.com

Giving receipts for donations to a homeschool group

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Do we need to offer a written letter or some sort of receipt for donations to our organization?
If we are hosting a parent event and door prizes have been donated, how is that handled?
Do we need for the donor to give us a receipt or some sort of written statement stating the value of an item that has been donated?
Is there a particular format or template for receipts given to donors?
Thanks so much!
Darlene
Darlene,

Yes, you should give a receipt for donations. The IRS Publication 4221-PC p. 26 explains it all. Be sure to include a note about “No goods or services were given in exchange for this donation.”The value of donated goods is determined by the donor, not your organization as the charity. You can give a thank you letter to the donor and fill in a description of the item donated, but not its value.

Sort of like Goodwill does when you drop off stuff. They have a stack of cards at the drop off counter. Goodwill fills in the date, but the value of the donation is filled in by the donor.
No, there are no official donation receipt forms.
Just follow the example of Goodwill or your church.
Carol Topp, CPA

How do I create a budget for my homeschool group?

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From Marilynn Boyko, of  IHaveMy501c3NowWhat.com (like that URL name?) comes this advice on creating a budget for your nonprofit organization:

Creating a Budget
Budgets should be in place before the beginning of the fiscal year each year, with the past year’s budget closed out.

Each year the board should be the one with the assistance of the Executive Director to create a budget with line-items of expenses and revenues.

Start with Expenses

  • A line item refers to expenses such as facility rental, telephone, program operations, event costs, etc.
  • Each line item has an estimated cost for each quarter which totals up at the end of the year.
    Then each quarter the line-item is examined by the treasurer and the board to compare planned versus actual.
  • Compare what was planned to be spent and what was actually spent. Sometimes what was spent exceeds the allocation and sometimes it doesn’t.
  • When the line item exceeds the amount, money has to be allocated from another line item in order to balance the budget. It is all about balancing the budget and being wise stewards.

Then Plan Your Estimated Revenues

  • Then compare the planned versus actual revenues. Mid-course corrections can be made and adjustments made for each line item.
  • This keeps the board abreast and responsible for the financial health and well-being of the organization, and assists in keeping things real, realistic, and manageable.

 

Cover Money Mgmt HS Org
Need more help with creating a budget for your homeschool organization?

Order a copy of Money Management in a Homeschool Organization. It has sample budgets and tips to make record keeping easy!

 

 

 

Carol Topp, CPA

 

Can a Classical Conversations community be a tax exempt nonprofit?

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I am directing a local Classical Conversations group, and many churches in our area will not consider housing us because we are not a nonprofit. Since I am basically an independent contractor licensed by CC corporate to run a community in my area, am I potentially eligible to have my community declared a nonprofit?

-Jen, Classical Conversations Director

 

Jen,

I recently discussed nonprofit status for CC Communities with Classical Conversations COO, Keith Denton.  He explained to me that “CC Directors (who are licensees of CC) may form an entity through which to run their homeschooling operations.

CC does not require a director to run his/her homeschooling program through an entity, nor does it require that such director choose a specific type of entity (non-profit versus for profit) for its homeschooling community.

CC recommends that all directors consult with an accountant and lawyer when making the decision of whether to form an entity, and what type.  The decision of which entity to form depends on a variety of factors specific to the director and state where the homeschooling community is formed.  As such, consultation with an attorney and accountant in a director’s community is highly recommended to best address all relevant factors. ”

That was very helpful!

I can help you weigh the pros and cons of for profit or nonprofit status for your CC Community. Contact me to schedule a phone consultation.

Carol Topp, CPA

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