What are the advantages and disadvantages of paying reimbursements?
Political subdivisions of the State, federally-recognized Indian tribes, and nonprofit organizations described in Section 501(c)(3) of the Internal Revenue Code which are exempt from income tax under Section 501(a) of such code are entitled under the law to elect to pay reimbursements in lieu of paying taxes. Stated below are some matters to be considered when making the election. To elect to become a reimbursing employer is comparable to making a decision to discontinue carrying casualty insurance. If no casualty occurs, the cost of the premium has been saved. Likewise, if no former employee is paid unemployment benefits, the organization has saved the cost of the tax but may have to pay the cost of a surety bond as a reimbursable employer which may be required to guarantee payment of reimbursements.
