We're a small non-profit [501(c)(3)] organization and don't pay income taxes. Should we do a MERP?by Tom Luker on 05/01/15
Yes. We have several non-profit clients, including charitable organizations, small churches and business associations, all of whom do not pay corporate income taxes, under various categories of the 501 (c)(_) charter.
- One big advantage of using a MERP or HRA [Health Reimbursement Arrangement] is that it can help in recruiting good talent, competing against the larger non-profit organizations “big boys” who probably have a Cafeteria Plan/Sec 125/FlexPlan or other benefit formats installed for their employees.
- Sometimes the only full-time EE of a “micro-sized” non-profit is the executive director, founder, or chief fund-raiser. Key-employee benefits can be important in retention recruitandment.
- Any non-profit organization who provides non-W-2 compensation [such as a 403(b) annuity or a MERP] will save 7.65% FICA and will also save Worker’s Comp insurance, which can be at least 1% of payroll or more.
- The employee will also save income tax plus 7.65% FICA. The result is that the non-profit employer saves about 9% payroll costs while the employee saves a conservative 25% of the amount reimbursed. A WIN-WIN for the ER and EE!
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