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Tax Issues to Consider When Sharing Employees

2021

This article focuses on the tax considerations for CAAs entering into a shared employee relationship. It presents three commonly-seen examples of sharing employees within the Community Action network:

  1. a 501(c)(3) nonprofit state association sharing employees with another tax-exempt organization, such as a 501(c)(4) organization;
  2. a nonprofit CAA sharing employees with a for-profit subsidiary that is formed to operate the CAA’s social enterprise; and
  3. a nonprofit CAA sharing employees with another nonprofit CAA or a nonprofit community partner organization.

The article discusses the implications of each of these arrangements on a private, nonprofit CAA’s tax-exempt status, as well as issues related to withholding and paying payroll and employment taxes for shared employees. While it discusses major tax issues present in these scenarios, it is not exhaustive, and any CAA interested in entering into a shared employee arrangement should consult with local counsel.

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