I just purchased your e-book, Paying Workers in an Homeschool Organization. It only briefly touched upon the issue I am most interested in, and I am wondering if you have additional resources to answer my question.
Our Steering Committee decided years ago to provide certain gifts and perks to our chairman whom they were in danger of loosing due to her family suffering financially at the time. The financial hardship has passed, but the gifts and perks remain. Currently, our chairman receives these annual benefits:
- $1,000 in gift cards (usually grocery and gas gift cards)
- $700 in classes for her children – these are the fees paid directly to the independent contractor teachers
- $100 -200 in waived registration fees (These are fees that the co-op charges members.)
- $160 in free pizza/drinks/snacks
- reimbursements for costumes and drama-related costs for her children (all other members pay for these)
- $300-$500 in cash gifts collected from members and given directly to the chairman.
She is the only one to receive gifts and perks out of the co-op budget.
This has been a very difficult conversation at our co-op because our chairman does do an enormous amount of work.
Anne in PA
When I read the list of “perks” your chairman receives I was shocked! Wow!
Most board members are happy with flowers or a small gift card.
According to the IRS, an officer who is paid is an employee. That means the gift cards, tuition discounts, and cash she received should have been reported to her on a W-2 and your group was supposed to pay employer taxes (SS/Medicare) on her “wages” and file quarterly tax forms with the IRS!
When you pay independent contractor teachers on her behalf, you are paying her personal expenses. The IRS considers payment of personal expenses as taxable compensation and it needs to be reported on a W-2. See https://www.irs.gov/pub/irs-tege/eotopici93.pdf
My recommendation is to stop these excessive payments immediately. The IRS calls this “excess benefits” and can impose penalties and a 25% tax on what they deem “excessive.”
Here’s an excellent article on excessive benefits (they consider paying personal expenses for members of an officer’s family to be “excessive.”)
Here’s what they recommend:
If your nonprofit discovers an excess benefit transaction with a DP (disqualified person; i.e. , an insider or leader), it should make good faith efforts to correct it. To do this, you must have the disqualified person repay or return the excess benefit, plus interest, and then adopt measures to make sure the same situation doesn’t occur again. The IRS will take into account these efforts in deciding what penalties to impose and especially whether to revoke the nonprofit’s tax exemption. (emphasis added)
You can, of course, start paying her a salary that she will report as taxable income to the IRS. My new book Paying Workers in a Homeschool Organization can help with that!
Carol Topp, CPA
Paying Workers in a Homeschool Organization-2nd edition