Tax-exempt organizations can take advantage of powerful tax legislation enacted especially for them to fund special pay amounts due to employees. A tax-exempt employer may contribute unused sick pay, annual leave pay, vacation pay, or other forms of special pay into a retirement plan. If such pay is contributed to the plan, the employee defers taxes on the contributions until distributed and both the employer and the employee permanently save any Social Security and Medicare taxes otherwise due on the contributions.
Certain governmental employees can contribute to a FICA Alternative Plan instead of Social Security. As a part-time, seasonal or temporary employee, you are eligible to participate in your organization's FICA Alternative Plan with pretax contributions. The FICA Alternative Plan reduces your current tax liability because your contributions are made before tax withholding.
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