Financial Procedure FAQs

1. Do IEA locals and regions have to pay Illinois sales tax on items that they purchase?

YES! Even though the IEA, its regions, and all of its locals are considered “tax exempt” by the IRS, this only applies to federal and state income taxes. We are NOT exempt from state sales tax. This can be confusing because your local school district, church, museum, etc. does not have to pay sales tax, but labor unions are a different category of “tax exempt” and are liable for sales tax. For the same reason, if someone makes a donation to your local school, church or museum, it is tax-deductible, but donations to the IEA and its locals are not.

2. I’ve heard that my local can receive a rebate of the IPACE funds contributed by our members. How does this work?

Yes! Check the “IPACE” material under “Legislative” on the front page of the IEA website.

3. Our local is thinking about obtaining a credit card for use by our officers. What guidelines should we follow on this?

All other avenues and alternatives should be explored before the decision is made to obtain a local association credit card. Use of a credit card negates some of the internal controls that are discussed in the IEA’s Financial Procedures for Locals & Regions handbook, e.g. the “two signature” recommendation. Unfortunately, we have seen cases where a person has used a local or region credit card inappropriately and has not been able to pay the funds back.

For purchases that must be made by credit card, we recommend that an officer of the local make the purchase using his/her own card and then request reimbursement from the local. Normally, this can be done so that the officer is reimbursed before he/she has to pay the credit card bill. Nowadays, most officers seem to prefer this approach since they get rebates, airline mileage, etc. through use of their personal credit cards.

If there is no alternative to a local obtaining a credit card, we recommend that the credit limit be set as low as possible so that losses due to improper usage are minimized. If the card’s purpose can be served by obtaining it from a single vendor, such as Lowe’s, this is preferable to obtaining a general-purpose card such as MasterCard or Visa.

You also need to make sure that adequate controls are in place. The policy for access and use of the card should make it possible to tell who used the card to make each purchase on the monthly statement, in case there are issues or questions. The credit card company should mail the monthly statement to a local leader who does not have access to the card, so he/she can review the monthly activity and verify that it was correct. And make sure that the individual, signed credit card slips are maintained and kept with the statement. You should not pay the monthly bill with only the statement as documentation.

4. Is it permissible for our local to generate interest income through money market accounts, certificates of deposit, etc.?

There is nothing wrong with investing your spare funds so that they generate interest income. This provides extra money for your local, which can be used for any legitimate purpose for which you would normally spend your local dues income. Of course, you should be prudent in your selection of investments for your spare funds.

You should not generate investment income on your political action funds, which should be kept separate from your local’s other deposits.

5. I tried to open a new bank account and the bank asked for our “IRS determination letter” and “articles of incorporation.” We can’t locate either of these and the bank won’t open the account without them.

Most not-for-profit organizations have to apply to the IRS for tax exemption, and when this is approved the organization receives a “determination letter” from the IRS that shows the approval. However, IEA locals automatically become tax exempt when they are formed, because of their affiliation with the IEA. Therefore, IEA locals never receive a “determination letter.” However, the IEA Business Services Department can provide you with alternative documentation that supports your tax exempt status.

IEA locals are not incorporated, so you will not have “articles of incorporation.” Just tell your bank that you are a not-for-profit association, not a corporation. This should clear up the confusion.

6. I have heard that the IEA charges $1,500 to perform an audit of a local association. Is this true?

There is normally not a charge for auditing a local. If there were specific circumstances that required out-of-pocket costs (other than normal travel expenses), the local might be expected to pay these, but in most cases the audit itself would be at no charge.

See “IEA Audits of Locals” in the Financial Procedures section of the website for detailed information on this topic.

7. I read somewhere that all tax exempt organizations must file an annual return with the IRS. I am my local’s Treasurer and have never filed a return with the IRS. What do I need to do?

It is true that all IEA locals have to file an annual return with the IRS. Locals with “annual gross receipts” of less than $50,000 per year are required to file Form 990-N, commonly called the “E-Postcard.” The $50,000 threshold does NOT include the IEA-NEA dues that locals collect from their members and send to Springfield. So basically, if your local dues (plus any additional miscellaneous income) are less than $50,000 per year, you can file the E-Postcard, Currently, all except about thirty of the 900+ IEA locals file the 990-N. Most locals that file the 990-N have authorized the IEA to file the form on their behalf. So the local is assured that their return is filed every year, but does not have to do it themselves.

So your local has probably authorized the IEA to file the 990-N on your behalf. To verify this, contact the IEA’s Business Services Department.

8. How are IEA membership cards distributed?

Normally, cards are printed in late August and are mailed to local Presidents in early September. 2004 was an exception to this schedule, due to some startup issues with the new Access card being combined with the membership card. The local Presidents are then expected to distribute the cards to their members promptly. The cards are printed in alpha order and sorted by building (if this information has been provided by the local).

To be sure that our members receive their membership cards at the beginning of the school year, the cards are run based on the prior year’s membership records. Unfortunately, this means that some cards may be printed for individuals who have left the district in the new membership year.

Local membership chairs can help us to avoid this problem by providing the Membership Department in the summer months with a list of members who will not be returning the following school year. This can be done in writing or by e-mail. If this information is received before the annual printing of membership cards, the individuals can be dropped from the database and cards will not be printed for them. This saves money for the IEA and also saves time for the local Presidents, who do not have to sort out the retirees’ cards from those of active members.

New cards are printed every two weeks after the initial mailing goes out. This ensures that new members will get their cards within two weeks after their enrollment forms are processed.

9. Another local treasurer mentioned that she had to file “Form 1099” for her local. What is this? Do we have to file it?

The IRS has a large series of different “1099” forms, that various organizations must use to report different kinds of income. The discussion below refers ONLY to Form 1099-MISC. If after reading this material, you feel that you must file a 1099 form, please make sure to use Form 1099-MISC and not one of the other “1099” forms.

The IRS uses Form 1099-MISC to track the income of self-employed people, much as it uses Form W-2 to track the income of people who work for someone else. Therefore, the 1099 filing requirement applies only to payments made by your local to individuals, as opposed to payments to corporations, not-for-profit organizations, etc. So if you pay one of your members $1,000 to set up your local’s website, a 1099 would be required, but if you paid Best Buy to do the same work, there would be no filing requirement.

A separate Form 1099 should be filed for each person who is paid $600.00 or more by your local or region during any calendar year. The $600.00 is cumulative payments, e.g. paying someone $50.00 per month would require filing a form for them. Paying the same person $49.00 per month would not require a 1099 ($49.00 x 12= $588.00, which is less than $600.00).

The $600.00 threshold pertains only to payments for services or rents. In other words, buying supplies or other products from someone does not “count,” nor do reimbursements to your officers or members for business expenses that they have incurred. Examples of the latter include reimbursing them for expenses at the RA, reimbursing them for supplies that they purchased for your organization, etc.

Generally, the “reimbursement” exclusion only applies if the person provides you with receipts that support the expenditures. If someone gives you a note that says “Please reimburse me for $20.00 that I spent on supplies,” and you pay them the $20.00, that counts toward the $600.00. If they give you a receipt from Staples that shows that they paid $20.00 for supplies, and you reimburse them, that does not count.

If your local pays the IEA-NEA and/or local dues for a leader, that “counts” toward the $600 threshold. The IRS looks at this practice as being the same as writing them a check.

Please note that payments less than $600.00 per year may be reported as well, at your option. An example would be where someone is given an advance to go to the RA and then either does not go or else does not provide documentation of expenses. If you give someone a $500.00 advance and they meet one of those conditions, you are justified in reporting the $500.00 to the IRS on Form 1099.

The forms should be completed by January 31 of each year. If you must file one or more Forms 1099, there is a short cover sheet called Form 1096 that must accompany them. Sample copies of both forms, and instructions, are available under Forms and Publications on the IRS website, and are also available under Links in this section.

Additional information about deadlines, how to order the forms, etc. is available in the Financial Procedures for Locals & Regions manual. Contact the IEA Secretary-Treasurer or the Director of Business Services if you have questions.

10. Board Policy #8 says we have to budget $3 times the number of members every year for “mediation, arbitration and fact-finding” in order to qualify for financial assistance from the IEA for these items. If we already have this amount of money set aside in a separate bank account, why do we have to put it in the budget? This increases the dues by $3 when we already have the $3 per member set aside.

The Board Policy is pretty explicit about having the $3 per member in the budget in order to qualify. If you already have this amount of money set aside in a strike fund, an acceptable way to get the $3/member into the budget without affecting the dues requirement would be:

Put the $3/member in the INCOME section of the budget as “Transfer from Strike Fund.”

Put the same amount ($3/member) in the EXPENSE section of the budget as “Mediation, Arbitration and Fact-Finding.”

With this approach, the $3/member is in the budget but the income and expense line items offset themselves so there is no impact on the dues requirement.

This approach only works if your local has a separate, dedicated fund for strike purposes and the balance in the fund is at least equal to the $3 per member.

11. How do membership “drops” and “adds” affect RA delegate allocation?

Delegates for the NEA RA are determined based on membership transmitted to the Membership Department as of January 15 of the current membership year. (Actual Delegate counts are processed on January 31). Delegates for the IEA RA are based on membership counts as of July 31 of the previous year.

If a member leaves the local prior to July 31, but the local does not notify Membership Processing until after July 31, he/she is still counted as member for delegate purposes for the IEA RA. Conversely, if a member joins a local prior to July 31 but the enrollment form is not processed until after July 31, he/she is not counted as a member for delegate purposes. Please remember that the membership year runs from September 1 to August 31, by the July 31 delegate count, the membership year is virtually over, so these issues are rare.

The same process would apply to the NEA RA counts in January.

If a local notifies Membership that a person is retiring at the end of the school year, that person will remain on the roster until the end of that year. For example, if in January 2015 a local notifies Membership that a person is leaving at the end of the 2014-2015 year, that member will remain on the 2014-2015 roster. It is assumed that full dues will be collected from that member. That membership will count for delegate purposes. Assuming the transaction is handled correctly, a local is not penalized for reporting its year end drops before the end of the year.

It is important that region chairs contact the President’s office if there is any question about the membership figures that are sent to them. Adjustments can be made when circumstances dictate.

12. Our bank has stopped sending us copies of our cancelled checks. Is this is problem?

Yes! You need to have copies of your checks to support your financial activity in case of an audit by the IRS or some other regulatory body. Also, we strongly recommend that IEA locals have some sort of financial audit very year, either by an internal committee or by an outside CPA. Bank-generated copies of your checks are essential to this audit process.

Making photocopies of your checks before they are mailed, or using carbon copies of your checks, may help with your bookkeeping process but are useless for audit purposes. You need to have copies of the actual checks processed by the bank.

If your bank wants to charge you extra for providing you with copies of your checks, or won’t provide them at all, then it may be time to look for a new bank. There are plenty of banks that provide free copies of all of your cancelled checks.

13. I am a new Region Treasurer, and I noticed two items on our region rebate calculation that I don’t understand. There is an addition to the rebate amount labeled “Bylaw Amendment,” and there is a deduction from the in-region funds labeled “laptop.” What do these mean?

Each region receives rebate funds based on its current “full-time equivalent members.” The FTE figure is computed by dividing the region’s total IEA dues obligation by the amount of dues that a full-time certified member would pay. Essentially, a full-time certified member represents 1.00 FTEs, a full-time ESP represents .50 FTEs, a quarter-time certified member represents .25 FTEs, etc. So a region with 2,000 full-time certified members would receive its rebate based on 2,000 FTEs, but a region with 2,000 full-time ESPs would receive its rebate based on 1,000 FTEs, since full-time ESP’s pay 50% of the full-time certified dues amount.

Many years ago, the IEA recognized that this situation could cause inequities for regions that have a lot of members who are not full-time certified. So the IEA bylaws were amended to provide additional rebate funds for regions whose FTE-to-member ratio is less than 85% (this was the average ratio when the bylaw amendment was passed). So if your region’s ratio is less than 85%, you will receive additional rebate funds (labeled “Bylaw Amendment”) which bring your rebate level up to the amount that it would have been had your ratio been 85%.

An example might help to clarify this. Suppose your region consists of 2,000 full-time ESPs and the rebate for the year is $20 per FTE. So your region has 2,000 members but only 1,000 FTEs (since full-time ESPs pay half the dues of a full-time certified member). Your ratio is 1,000:2,000, or 50%.

Without the amendment, your rebate would be $20 times 1,000, or $20,000. Because of the amendment, you receive credit for 1,700 FTEs (85% times 2,000 members), or $34,000. So your calculation would show an additional $14,000 in rebate funds, labeled “Bylaw Amendment.”

The “Laptop” adjustment is much simpler. Region chairs are provided with a laptop computer, and if they choose to have the computer replaced sooner than called for by IEA policy, their region is assessed for the additional cost. This is deducted from their in-region funds.

Contact the IEA Business Services Department if you have specific questions about how your rebate is calculated.

14. I am a new Local Treasurer and just found out that our local gives out scholarships to college students every year. Is this legal? Ethical?

Quite a few IEA locals provide scholarships. It’s “ethical and legal,” but there are some rules you need to follow and this of course makes your job as Local Treasurer a little more complicated.

  1. If you ask people to donate money to your local for any purpose that could be construed as “charitable,” you may be required to register with the Illinois Attorney General and then file annual reports each year. The current thresholds are $4,000 in charitable assets on hand at any time, OR receipt of over $15,000 in contributions in a 12-month period. If people make donations to your scholarship fund and you may be close to either of these thresholds, you should seek advice as to how to proceed.
  2. As a labor union, contributions that you receive are NOT deductible by the contributor for federal income tax purposes. This is the case no matter what the funds are used for. If you ask for contributions in writing (flyers, emails, etc.) you are required to include a statement to this effect. This statement must be “conspicuous and easily recognizable.” You don’t want someone to contribute to your scholarship fund, get audited, and then say that you told them the deduction was deductible.
  3. If you are considering any sort of gambling (raffles, bingo, etc.) there are State laws regarding licensing, fees, etc. There are fines for persons and organizations that don’t comply.
  4. You’re probably better off if there is some sort of business purpose for the scholarships. If you restrict applicants to students who are studying to become teachers or other school employees, then you are helping to train the next generation of union members. If you restrict applicants to children of local members, then you are serving the interests of your members. If you don’t have either of these restrictions, then your only business purpose is to build a good image for your local. This isn’t necessarily a problem, but it might be harder to justify.
  5. And this is more of a local PR consideration, but you are probably better off if you have a good, objective process for awarding the scholarships. This helps you to avoid any perception of favoritism.

15. Our bank wants us to verify that our “taxpayer identification number” is correct. What is this? How can I tell if it is correct?

The IRS needs ways to uniquely identify and keep track of everyone who might be a potential taxpayer. For individuals, this is done via the Social Security number. For corporations and other entities, it is done via the Taxpayer Identification Number (TIN), which may also be referred to as the Employer Identification Number (EIN) or Federal Employer Identification Number (FEIN).

All IEA locals have a TIN, which is a nine-digit number in the format XX-XXXXXXX. You need this number in order to a) open a bank account, b) file your annual information return with the IRS (see FAQ #7), and c) file any other IRS forms such as the 1099-MISC (see FAQ #9). Consequently, it is very important that your local/region keeps this number on file for easy access. If you are unsure of your TIN, you can contact the Director of Business Services.

If there are questions about the validity of your TIN from your bank or any other source, please contact the IEA Director of Business Services immediately.