Yes Virginia, Unions Have to File Taxes, Too
(This article first appeared in the May-June 2017 issue of The American Postal Worker magazine.)
By Secretary-Treasurer Liz Powell
April was tax time for citizens, but unions have a tax time too. All unions, which are tax-exempt organizations, are required to file an annual tax report with the Internal Revenue Service (IRS).
A labor organization, as defined by the IRS, is “an association of workers who have combined to protect or promote their interests by bargaining collectively with their employers to secure better working conditions, wages and similar benefits. Similar benefits include benefits traditionally provided by labor organizations such as strike, lockout, death, sickness, accident, and other benefits. Labor organizations need not be recognized labor unions.”
IRS 990 Forms
Since unions do not pay income tax on the dues collected from their members, the federal government requires the finances of the union be available for review by the public. Unions must file an annual information return or tax report with the IRS. IRS Form 990 is the reporting form federally tax-exempt unions must file with the IRS each year. This form allows the IRS, and the general public, to evaluate a union’s operations and it includes information on their finances.
Annual information returns are reported on Form 990, Form 990-EZ and Form 990-N. The form that must be filed depends upon the annual income received by the union, called “receipts” by the IRS. When calculating annual receipts, the income from the current tax year is counted, not the funds already held in savings or checking accounts. In most cases, annual receipts will be limited to the dues collected for the fiscal year only, although some unions may have other income sources during the year.
Form 990 is the tax form used by unions who have $500,000 or more in assets and $200,000 or more in gross receipts for a tax year. This is the most detailed and complicated tax report unions must make. It is advised to get professional assistance when filing this report.
Form 990-EZ is the tax form used by unions who have less than $500,000 in assets and less than $200,000 in gross receipts for a tax year. This is an easier form to complete than the 990. If union officers are unfamiliar with the form, assistance may be required.
Form 990-N must be filed by unions whose annual gross receipts are less than $50,000 and are required to submit the form electronically, also known as the e-Postcard, if they elect not to file Form 990 or Form 990-EZ. There are no paper copies of this form; it must be filed electronically. The form has only eight questions, and only one that is financial. It confirms your contact information and that your union did not have receipts of over $50,000 for the fiscal year.
Tax Return Deadline
The 990 reports are due every year by the 15th day of the fifth month after the close of the union’s fiscal year. For example, if the fiscal year ended on Dec. 31, 2016, the 990-EZ is due May 15, 2017. The 990 form cannot be filed until after the tax year ends. An extension to file forms 990 and 990-EZ is available, if requested in advance of the due date.
If a union fails to file a required return by the due date (including any extensions of time), it must pay a penalty of $20 a day for each day the return is late. The same penalty applies if the union does not give all the information required on the return or does not give the correct information. There is no penalty for failing to file the 990-N report, although a union could lose its tax exempt status if the report is not filed for three consecutive years.
In general, the maximum penalty for any return is the lesser of $10,000 or five percent of the union’s gross receipts for the year. For an organization that has gross receipts of over $1 million for the year, the penalty is $100 a day up to a maximum of $50,000.
If the organization is subject to this penalty, the IRS may specify a date by which the return of correct information must be filed. If the return is not filed by that date, an individual within the organization who fails to comply may be charged a penalty of $10 a day. The maximum penalty on all individuals for failures with respect to a return shall not exceed $5,000.
In addition, if an organization does not file as required for three consecutive years, it automatically loses its tax-exempt status. Loss of a union’s tax exempt status could require that the union pay taxes on the dues collected. There is a $400 reinstatement fee. The Secretary-Treasurer’s Department can assist in getting the tax exempt status reinstated.
Remember, these tax filings are not optional, they are required by law.
National Secretary-Treasurer’s Training Seminar
Presidents, Treasurers and Trustees – You cannot comply with the law if you do not know the law!
Plan to attend the Secretary-Treasurer’s training from Sept. 29 to Oct. 1, 2017 at Bally’s Casino in Las Vegas, NV. The three-day training session offers classroom lectures on the legal and best practices for unions as well as a computer lab for both beginner and advanced Quickbooks users.
Registration information will be posted on apwu.org closer to the event date.