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

We highly recommend you consult with a CPA or other tax professional to confirm that your company is tax-exempt before setting this up in Gusto. If your accountant is added in Gusto, we encourage you to have a discussion with them so they can set this up. If you don't have your accountant added in Gusto, we recommend you add them.

If you don't have an accountant, use our Partner Directory to find one that best suits your needs.

1. Contact Gusto from the Help section (or the Priority support section for customers with Priority support) of your account to let us know about the company exemption.
2. Make sure to let us know the following:
   • Name of the exempt tax
   • The calendar quarter the tax exemption started being effective (ex. Q1 2023)
   • Reason for the tax exemption and supporting documentation

Once this is set up, no wages will be reported for this tax and we won't file for this tax in payroll.

We highly recommend you consult with a CPA or other tax professional to confirm that your employee is tax-exempt before changing the tax status for your employee. If your accountant is added in Gusto, we encourage you to have a discussion with them and they can set this up. If you don't have your accountant added in Gusto, we recommend you add them. If you don't have an accountant, use our Partner Directory to find one that best suits your needs. 

If you need to mark an employee as exempt from income taxes, have them complete a Form W-4 and indicate in their filing status they are "Exempt from withholding." 

• Heads up: The IRS requires that you reconfirm their exemption status by February 15 of each new calendar year.

If you're an employee who needs to be exempt, reach out to your admin so they can complete this on your behalf.

Reach out to our team from the Help or Priority support section of your account if you need additional assistance setting up a specific exemption. 

1. Click the People section and select Team members.
2. Click your employee’s name.
3. Navigate to the Job & Pay tab.
4. Scroll to the bottom of the page and click Add Special Tax Exemption.
   • If the employee already has active exemptions, click edit next to the Exempt Taxes section.
5. Provide the reason for the tax exemption.
6. Choose the date to start new tax exemptions.
   • If you need to backdate any exemptions, please reach out to customer support from the Help section of your account.
7. Select which tax(es) your employee is exempt from. Make sure to confirm any exemptions with your CPA.
8. Click Save.

We won't withhold tax amounts for your employee in upcoming payrolls starting on the selected effective date.

Note: Exemptions may negate wages from being reported on applicable forms. 

You can only remove tax exemptions if they're scheduled for the future, or if the employee hasn't been paid yet.

If you need to remove a tax exemption after an employee has been paid, please reach out to customer support from the Help or Priority support section of your Gusto account.

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. You'll then need to contact Gusto from the Help section (or Priority support section for customers with Priority support) of your account  with the following details:
   • If an employee or employer tax exemption is needed
   • 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. Please 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 product subscription in certain states—view the full list of required states and/or cities that Gusto is required to collect and remit sales tax in at the end of this dropdown.

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 are 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, please contact our Care team at (800) 936-0383.

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.