PTA Tax Rules for Nonprofit Organizations

Parent Teacher Associations (PTAs) are fundamental to the school community, providing support and resources that enrich the educational experience. As nonprofit organizations, PTAs must adhere to specific tax rules and regulations set forth by the Internal Revenue Service (IRS). Navigating these requirements is a primary responsibility for PTA leaders, ensuring the organization maintains its good standing and can continue its work.

Establishing Tax-Exempt Status

Before a Parent Teacher Association can operate with tax-exempt privileges, it must first obtain an Employer Identification Number (EIN) from the IRS. An EIN is a unique nine-digit number that identifies the organization for tax purposes, similar to a Social Security number for an individual. The application for an EIN is done using Form SS-4.

With an EIN secured, the PTA must then seek recognition as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code. This status formally classifies the PTA as a public charity, allowing it to be exempt from federal income tax and enabling donors to make tax-deductible contributions. This designation is not automatic and requires a specific application process to demonstrate that the PTA’s purposes are exclusively charitable or educational.

Most PTAs obtain 501(c)(3) status by becoming a subordinate organization under a central or parent organization’s group exemption. National and state-level PTA congresses often hold a group exemption, which allows local chapters to be recognized as tax-exempt without filing a separate, extensive application with the IRS. This process is more streamlined, requiring the local PTA to be included in the central organization’s official subordinate list submitted to the IRS annually.

Alternatively, a PTA can choose to file its own application for 501(c)(3) status directly with the IRS by submitting Form 1023, Application for Recognition of Exemption. This is a more complex process, requiring detailed information about the PTA’s organizing documents, activities, and financial data. This path is for PTAs that are not affiliated with a national parent organization or prefer to operate as a fully independent entity.

Annual Federal Filing Requirements

Once tax-exempt status is established, a PTA must meet annual federal filing obligations to maintain it. The specific form required depends on the organization’s annual gross receipts. For PTAs with gross receipts of $50,000 or less, the filing requirement can be met by submitting Form 990-N, also known as the e-Postcard.

If a PTA’s gross receipts are more than $50,000 but less than $200,000, and its total assets are less than $500,000, it must file Form 990-EZ, the Short Form Return of Organization Exempt From Income Tax. This form is more detailed than the e-Postcard and requires the PTA to report its revenues, expenses, assets, and liabilities, as well as information about its programs. For organizations with gross receipts of $200,000 or more, or total assets of $500,000 or more, the comprehensive Form 990 must be filed.

The annual filing deadline for all versions of Form 990 is the 15th day of the 5th month after the PTA’s fiscal year concludes. For a PTA operating on a school year calendar ending June 30, the deadline would be November 15. It is possible to file for an extension using Form 8868, which can provide an additional six months to submit the return.

Failure to file the required information return for three consecutive years results in the automatic revocation of the organization’s tax-exempt status. This consequence occurs without any initial IRS notification of the filing delinquency. If a PTA’s status is revoked, it is no longer exempt from federal income tax, and contributions made to it are no longer tax-deductible for donors. Reinstating this status requires filing a new exemption application and paying associated fees.

Managing Donations and Fundraising Income

For any single contribution of $250 or more, the PTA must provide the donor with a contemporaneous written acknowledgment. This receipt must state the amount of cash contributed or describe any non-cash property. It must also include a statement confirming whether the PTA provided any goods or services in consideration for the contribution.

When a donor receives a benefit in exchange for a contribution, this is known as a quid pro quo contribution. If a donor makes a payment exceeding $75 that is partly a contribution and partly for goods or services, the PTA must provide a written disclosure statement. This statement must inform the donor that the deductible amount of the contribution is limited to the excess of the money contributed over the value of the benefits received. For example, if a ticket to a PTA fundraising dinner costs $100 and the fair market value of the meal is $40, the donor’s tax-deductible contribution is $60.

PTAs must also be aware of the potential for Unrelated Business Income Tax (UBIT). This tax applies to income from a trade or business that is regularly carried on and is not substantially related to the PTA’s exempt purpose. An activity is considered unrelated even if the profits are used to fund the PTA’s charitable or educational activities.

Common PTA activities, such as bake sales where substantially all the work is performed by volunteers or sales of donated merchandise, are exempt from UBIT. However, activities like selling advertising space in a monthly newsletter or regularly selling items not related to the school’s educational mission could trigger UBIT if they are conducted on an ongoing basis. The first $1,000 of net income from unrelated business activities is exempt from this tax, but any amount over this threshold is subject to corporate income tax rates.

State and Local Tax Considerations

Beyond federal requirements, PTAs must navigate state and local tax laws, which can vary significantly. One of the most common areas of state-level regulation involves sales tax.

Many states require organizations, including nonprofits, to collect and remit sales tax on tangible goods they sell. When a PTA sells items, it may be acting as a retailer and must handle the associated tax. These items can include:

• Spirit wear
• School supplies
• Yearbooks
• Products from a fundraising catalog

Some states provide specific exemptions for periodic sales by nonprofits, but these exemptions are often limited in scope or frequency. PTA leaders must research their state’s specific rules to understand their responsibilities for collecting tax and filing sales tax returns.

Another area of state oversight is the registration for charitable solicitations. Many states mandate that any nonprofit organization intending to solicit donations from the public must first register with a state agency, often the Attorney General’s office or the Secretary of State. The requirements can include filing annual financial reports with the state, separate from the federal Form 990. Failure to register before soliciting donations can lead to financial penalties and other sanctions.