Withholding and Paying IC Employment Taxes

In contrast, 501(c)(3)s do not have to withhold and pay Federal employment taxes for ICs.

But there are two important exceptions:

• Incorrect employee classification and
• Backup withholding.

Incorrect Employee Classification

First, if the 501(c)(3) incorrectly classifies an employee as an IC, and there is no reasonable basis for doing so, the IRS may hold the organization liable for employment tax for that worker. If that happens, the IRS will charge the 501(c)(3) interest and penalties. See Code section 3509 for more information.