Tax exemptions

Employer Tax Status: Under section 501(c)(3) of the Internal Revenue Code, the IRS establishes that qualified non-profits (i.e. charitable, religious, and political organizations), are exempt from Federal Unemployment Insurance Tax (FUTA). Occasionally, other employers and some employees may also be exempt from other employment taxes.

Reimbursable employer: Certain employers, such as religious organizations and certain nonprofit employers, may have a choice to reimburse their state for the amount of unemployment claim benefits paid by the state to the employer's terminated employees. Employers have an account with the state and are charged dollar-for-dollar for benefits paid to their prior employees. 

• Most employers that have a reimbursable status will also need to set up their company type as Non-Profit in Gusto, and select Yes, we are a non-profit 501(c)(3) organization and are exempt from FUTA. 
• Follow the instructions below, in addition to changing your company type:
  1. Click the Taxes & compliance section and select Tax Setup.
  2. Under each state's Tax Setup where you've approved reimbursable status, click the blue Manage Taxes link.
  3. Next to "SUI Reimburser," click the blue pen and select Yes, we can reimburse the state if an employee collects SUI benefits—we don’t have to pay SUI taxes quarterly.

Employee Tax Status: Special exemptions may apply for Social Security, Medicare, Unemployment Insurance and other employment taxes for some employees. 

• Example: For specific types of visas (J-1 and F-1), some business owners/corporate officers, pastors, etc.
• If your employee indicates they're exempt from income tax withholding, have them complete a Form W-4, and indicate in their filing status they're "Exempt from withholding."

Make sure to consult with your accountant or a CPA before adding an exemption.

Contact us from the Help or Priority support section of your account if you need additional assistance setting up an exemption.

You can change the effective date of company-wide tax exemptions by following the steps below.

1. Click the Taxes & compliance section and select Overview.
2. Select the Manage exemptions tile.
   
   • You'll be taken to a section that shows all company tax exemptions.
3. On the tax that needs to be edited, click the three dots under the Actions column and select Edit.
4. Select I need to change the effective date.
5. Select the effective date for this change
   • If the date is in the past, our support team will need to assist with this change—click contact us to connect with the team.
6. Check the box confirming you’re aware of the implications.
7. Click Save changes.

You can only cancel tax exemptions with an upcoming effective date. 

1. Click the Taxes & compliance section and select Overview.
2. Select the Manage exemptions tile.
   
   • You'll be taken to a section that shows all company tax exemptions.
3. On the tax that needs to be edited, click the three dots under the Actions column and select Cancel upcoming change.
4. In the pop-up, confirm you want to make this change by clicking Cancel upcoming change.

Use the dropdowns below to learn how to remove tax exemptions.

1. Click the Taxes & compliance section and select Overview.
2. Select the Manage exemptions tile.
   
   • You'll be taken to a section that shows all company tax exemptions.
3. On the tax that needs to be edited, click the three dots under the Actions column and select Reactive exemption.
4. Briefly explain the reason for the reactivation.
5. Select the effective date for this change.
   • If the date is in the past, our support team will need to assist with this change—click contact us to connect with the team.
6. Check the box confirming you’re aware of the implications.
7. Click Save changes.

If you already ran payroll but forgot to set up a tax exemption, we can help you fix these past payrolls.

1. If you're fixing a tax exemption for an employee, set up the tax exemption for the employee using today as the effective date.
2. Next, contact us from the Help or Priority support section of your account with the following details:
   • Type of tax exemption (employee or employer)
   • Name of the employee who is exempt (if applicable)
   • Name of the tax that is exempt
   • The actual effective date for the tax exemption
   • Reason for the tax exemption and supporting documentation

Our support team will use this information to correct the payrolls that didn't include that tax exemption.

Ministers may be given an official housing allowance that is excluded from taxable gross wages. Here's how to set up a housing allowance in Gusto:

1.  Add the housing allowance amount as a recurring reimbursement. Under "Reimbursement," make sure you choose Minister housing allowance to properly characterize it. 
   • To create end-of-year federal filings, ministers and clergy must also have taxable wages in addition to any housing allowances issued.
   • Make sure the allowance is an official housing allowance that is excluded from taxable gross wages. 
2. At the end of the year, any recurring reimbursements you've labeled as "Minister housing allowance" will automatically show up in box 14 of the W-2 form. You can correct and override any amounts on the end-of-year checklist.

Tax exemptions for ministers and clergy

Ministers may be exempt from certain taxes such as Social Security and Medicare—refer to the Topic 417 - Earnings for Clergy for more details on how to request these tax exemptions with the IRS.

Once you've confirmed that the minister is exempt from these taxes, set up the tax exemption in Gusto in the People section.

Apps that can help

Gusto connects to Aplos Accounting and can automatically track your payroll and tax payments. We also support the W-2 requirements and unique church payroll needs for pastor housing allowances and tax exemptions.

Gusto is required to collect and remit sales tax on your Gusto subscription in certain states. See the full list of required states and/or cities that Gusto is required to collect and remit sales tax is at the end of this section.

Filing address determines tax rate

Sales tax on services like Gusto’s varies by jurisdiction. If a jurisdiction considers any of our products as taxable, we’re required to collect and remit sales tax.

The company filing address stored in Gusto is used to determine the tax rate, and the tax charged will appear as a separate line item on your monthly invoice.

If you're a Gusto Partner, your clients may be charged sales tax on their Gusto subscription based on their filing address stored in Gusto.

Tax exempt organizations

Some, but not all charitable, religious, scientific, or educational organizations may be exempt from sales tax.

If you're a Gusto customer and would like to apply for sales tax exemption, contact us.

Gusto partners with Avalara who will be validating tax exemption certifications on your behalf. Exemption validation typically takes 5-7 business days. If your application is approved before the end of the month, you will not be charged sales tax for the month, or months thereafter, so long as Gusto has valid proof of exemption as permitted by applicable law.

Sales tax jurisdictions—based on company filing address

States

• Alabama
• Arizona
• Colorado*
• Connecticut
• Hawaii
• Illinois*
  • Chicago
• Kentucky
• Maryland
• Massachusetts
• Minnesota
• New Mexico
• New York
• Ohio
• Pennsylvania
• Rhode Island
• South Dakota
• Tennessee
• Texas
• Utah
• Washington
• West Virginia
• District of Columbia (DC) 

*In applicable jurisdictions only.