Nonprofit organizations play a crucial role in providing essential services and support to communities, and the government acknowledges this by offering certain tax exemptions. These exemptions allow nonprofits to allocate more resources toward their missions rather than toward tax liabilities. One significant exemption is from the Federal Unemployment Tax Act (FUTA), which imposes a federal tax on employers to fund unemployment benefits. Nonprofits, particularly those classified as 501(c)(3) entities dedicated to charitable purposes, are often exempt from this tax, reflecting the understanding that they operate on tight budgets and rely heavily on donations and grants.

To benefit from the FUTA exemption, you must first confirm your eligibility through IRS guidelines. Before setting up this exemption in payroll systems like Gusto, you should verify your status with the IRS. Once confirmed, you can proceed to specify your exemption status in Gusto, ensuring compliance and maximizing your financial resources for your charitable missions. This process underscores the importance of understanding tax regulations to effectively manage a nonprofit's financial responsibilities.

Completing this process will prevent FUTA from being factored into your payruns.