Answers to the most frequently asked questions

1.	How do I determine if an employee is exempt or non-exempt?
2.	What is UBIT?
3.	What are the filing requirements for the State Charities Division?
4.	What are the 2007 IRS limits for mileage reimbursement?
5.	What are the filing requirements for a 990?
6.	What is the difference between an employee and an independent contractor?

1. How do I determine if an employee is exempt or non-exempt? Every employee must be classified as either non-exempt or exempt in order to comply with Federal law. Exempt employees are paid a salary and may not have to be paid overtime or minimum wage. Non-exempt employees must be paid a minimum wage and one and one-half times their hourly wage for overtime work. Overtime is considered any hours worked more than 40 hours in a week. These employees are also subject to the regulations concerning child labor and equal pay laws. An employee who is paid hourly is automatically considered non-exempt. Return to Top

2. What is UBIT? Unrelated Business Income Tax (UBIT) refers to an unrelated trade or business whose main conduct is not substantially related to the charitable organization's purpose. Three conditions must be met for an activity to be classified as UBIT: Trade or business The organization must be conducting the trade or business including activities carried on for the production of income from selling goods or services. Regularly Carried On If an activity's frequency, continuity and manner of conduct are comparable to the commercial operations of similar nonexempt entities, it normally is considered "regularly carried on." Not Substantially Related to the Organization's Exempt Purpose To be substantially related to an organization's exempt purpose, an activity that generates business income normally must "contribute importantly" to the accomplishment of those services. Return to Top

3. What are the filing requirements for the State Charities Division? For purposes of Minnesota law, a "charitable organization" is defined as any person, including a corporation or other entity who engages in the solicitation of funds for any charitable, philanthropic or similar public interest purpose. Registration Filings: Organizations of this type who receive or plan to receive $ 25,000 or more in total contributions from the public within or outside the State of Minnesota during an accounting year are required to file certain documents and register with the Charities Division of the Attorney General's Office. This must be done before any solicitation can begin. Every charitable organization required to file a registration statement must file an annual report within 6.5 months after the close of its fiscal year. There are exceptions to filing the registration statement and the annual report. Note, even if the organization qualifies for an exemption, it may still have to submit documentation to the Attorney General’s office if it had $25,000 in assets at any time during the accounting year or engaged in charitable gambling. Call one of our experts to find out more about the exceptions and the additional filing requirement. Another requirement of the Attorney General’s office is to submit an audit prepared in accordance with generally accepted accounting principles (GAAP) if total revenue exceeds $350,000. Return to Top

4. What are the 2007 IRS limits for mileage reimbursement? For 2009, the Internal Revenue Service raised mileage reimbursement rates to $0.55 per mile. Return to Top

5. What are the filing requirements for a 990? An annual tax return is required to be filed by most tax exempt organizations whose annual gross receipts are at least $25,000. It is due within 4.5 months after the close of the organization's fiscal year-end. Tax exempt organizations required to file an annual return have two options, the Form 990 and the Form 990-EZ, both of which received significant overhauls for the 2008 tax year and years following. Form 990-EZ was designed for use by smaller tax exempt organizations and, thus its reporting requirements are less extensive than those required by Form 990. Click here to see information for determining which form to file on the 990 filing section. Return to Top

6. What is the difference between an employee and an independent contractor? Whether a person is an independent contractor or an employee generally depends on the amount of control exercised by the employer over the work being done. Dictating how a job is done or the actions of the worker may establish an employer-employee relationship. Independent contractor Operates under a business name Has his or her own employees Maintains a separate business checking account Advertises his or her business' services Invoices your for work done Has more than one client Has their own tools and sets their own hours Keeps their own business records Employee Performs duties dictated or controlled by others Is given training for work to be done Works for only one employer For most small businesses, independent contractors should not be considered as substitutes for employees. Government agencies generally find that people in the work force are legally employed for tax purposes and the cost of being wrong, remitting unpaid payroll taxes, interest and penalties are very high. (Information courtesy of http://www.sba.gov/) Return to Top