Allocating funds to pay nonprofit payroll taxes is complex and challenging. Questions often arise on how to allocate payments between different funding sources.

Editor’s Note: The following questions and answers represent real world challenges nonprofits encounter managing nonprofit accounting everyday tasks. Our advisor column is intended to provide basic advice on questions related to the topic. Answers to these questions are simply the view and opinion of our nonprofit accounting pros. Nonprofit Accounting Pro shall not be liable, answerable or accountable for any loss or damage resulting from the advice given by our advisor.
Allocating Nonprofit Payroll Taxes Among Funding Sources
Answer: Yes, go to araize.com and check out FastFund Payroll software. It lets you allocate employee’s salaries and payroll taxes to multiple program and grant codes based on hours worked, or by percentage. You can also set up your Budgets for each grant so you can properly track your budget to actual to make sure you are in compliance.
Recording Nonprofit Payroll Taxes
Answer: There are two types of payroll tax withholdings – Employee (not your expense) and Employer (your expense). Payroll Tax expenses incurred by the employer includes Social Security, Medicare and Unemployment. Some states have supplemental employer taxes. The employee’s withholdings for income taxes, Social Security and Medicare are not expenses for the company. When recording payroll, you are recording the Gross Salaries paid to each employee, plus the employer payroll tax expenses. If you are looking for an easy way to handle these allocations, go to araize.com and check out FastFund Payroll.
1099 for Executive Director?
Answer: Unless you provide the same services to other nonprofits, you are considered an employee. For more detailed explanation of how you should classify your pay, go to: Independent Contractor.
Allocating Fundraising Wages
Answer: Since salaried employees get a fixed salary regardless of the number of hours worked in a week, you should allocate to fundraising based on the number of hours they worked for the pay period.
Separate Payroll Bank Account?
Answer: There is no valid reason to set up a separate bank account for payroll only. This only creates more work since you have to manage and reconcile two bank accounts.
Bottom Line
In the normal course of performing nonprofit payroll, you may have encountered some of these issues. It is good practice to consult a nonprofit accounting pro to determine the best course of action to prevent costly errors.
We hope our answers provide clarification. We welcome your questions and feedback. Feel free to comment below.
About the Author
Joseph Scarano is the CEO of Araize, Inc., developers of cloud-based FastFund Online Nonprofit accounting, fundraising and payroll software solutions to help your nonprofit become more transparent, accountable and sustainable.