One of the great things about writing for CT Online is the correspondence I receive. This month, I have selected one of those pieces of correspondence that poses some questions about nonprofit counseling practices.
For ease of reading, I have broken it down with bullet points and answered as best as I can. Please remember that I am not a tax or law expert, so my answer shouldn’t serve as a replacement for a proper consultation with professionals in those fields.
Jennifer Hurley writes: “I am a licensed professional counselor from Michigan thinking about starting a nonprofit counseling practice. I am wondering if you’re still able to take insurance for services as a nonprofit? If so, how do you separate insurance income earned from grant money and charitable sliding scale fees? Would a portion of insurance income go to the nonprofit, or does the clinician keep insurance profits and do pro bono work for the nonprofit? I have a genuine need to help people and want to cover all my bases before I decide how I will start my own practice. Can an employee of the nonprofit get a regular paycheck (with taxes taken out) and file their taxes yearly? As a counselor who runs a nonprofit, works for the nonprofit and accepts insurance, how do you file your taxes? Would an administrator of a nonprofit be on the payroll and receive a check with taxes taken out and pay taxes yearly [with] all private pay insurance earnings going to the agency? Or could an administrator of a nonprofit provide counseling services and keep all money earned from those services while also overseeing the agency? I guess I’m confused about making money as a nonprofit and growing as a nonprofit while spreading the wealth of the nonprofit in a charitable way. Are counselors who work for a nonprofit required to contribute a portion of their income to the nonprofit (like a 60-40 split)?”
- Are you still able to take insurance for services as a nonprofit? A nonprofit clinical agency is simply one that puts products and services above profits. You can indeed work with private health insurance companies and any other source of third-party payer. In fact, most nonprofit clinical agencies contract with major and minor insurance carriers. You can also make a profit on any goods or services as long as that profit is not excessive and your primary purpose is not making a profit but instead providing a public good.
- How do you separate insurance income earned from grant money and charitable sliding scale fees? This is done via accounting but is not that difficult. Grant money can be limiting depending on the grant (the same goes for donations). Some funding will tell you what it can and cannot be used for. For example, it may stipulate that the funding can be used only for services, repairs or another specific use. If the grant money or donation does not have a stipulation attached, then the board of directors or financial officer can apply it wherever the agency needs it to go. For the most part, the charity’s income can be used wherever it is needed — be it on salaries, repairs, expansion, etc. — unless the money had specific limitations when it was received.
- Can an employee of the nonprofit get a regular paycheck (with taxes taken out) and file taxes yearly? All employees of a nonprofit need to receive a regular paycheck with all applicable taxes taken out and paid to the appropriate government agencies. Although the charity itself is exempt from taxes, the exemptions do not apply to employees or to payroll taxes. Your accountant or payroll professional will typically set this up for you. Payroll taxes are paid and filed quarterly.
- As a counselor who runs a nonprofit, works for the nonprofit and accepts insurance, how do you file your taxes? This process is the same for any employee, regardless of whether that employee works for a for-profit or nonprofit agency.
- Would an administrator of a nonprofit be on the payroll and receive a check with taxes taken out and pay taxes yearly with all private pay insurance earnings going to the agency? Any employee for a nonprofit agency would have taxes taken out by the employer, although the means of pay may differ. For the first decade or so of my charity, I was paid a percentage of what I actually made for the charity via services (meaning any pro bono session that the agency had me do was also a no-payment session for me). Later, as we grew and things got more complicated, I was moved to a salaried position. Now, no matter what I earn for the company and no matter how many donations or grants we receive, my pay is set at a yearly amount and paid out on a biweekly basis.
- Could an administrator of a nonprofit provide counseling services and keep all money earned from those services while also overseeing the agency? The short answer: Yes. The longer answer is that pay would depend on the administrator’s contract. The contract is developed by the board or financial office and agreed to by the administrator/employee. Any money paid typically would come in through the nonprofit, be processed by the nonprofit and paid out as needed. You would not usually have money from work at the nonprofit go directly to the employee from clients because this would likely cause some IRS-related issues and concerns beyond just that of tax liabilities.
- Are counselors who work for a nonprofit required to contribute a portion of their income to the nonprofit (like a 60-40 split)? Nope, not a cent. Donations, by definition, are strictly voluntary. Some folks, however, do agree to a split percentage of reimbursement, meaning that they are paid based not on the session but on the fee collected for the session. This is far different than a donation but helps protect both the agency and the employee.
For instance, if the employee agrees to a set fee for service — say $25 per individual and $45 per group — this could end up costing one party or the other a lot of money depending on the setup. If the session is pro bono, then it would be a 100 percent loss for the employer. If, however, some sessions pay differently, a flat fee could really impact the employee.
Years ago, I worked as an hourly clinician and was paid less than $14 per hour. I ran four to five groups per day with as many as 19 people per group. My employer was paid on a per session basis by insurance. The insurance paid approximately 40-50 percent for a group as it did for an individual session. If it was 50 percent, my employer made the equivalent of 38 to 47.5 therapeutic hours for every eight that it paid me. My employer was also paid at a much higher hourly rate than I was paid even when factoring in benefits (which were few). Had I been able to negotiate a fairer percentage, I would have made out much better.
The bottom line is that nonprofits are not easy, but neither are they beyond our abilities. In many ways, the day-to-day operations are much the same as any other type of business entity. The main difference is that nonprofits serve a public good, whereas a for-profit is typically set up to show a profit not only for the business in general but also for any potential stakeholders (by definition, a nonprofit owns itself).
“Doc Warren” Corson III is a counselor, educator, writer and the founder, developer, and clinical and executive director of Community Counseling Centers of Central CT Inc. (www.docwarren.org) and Pillwillop Therapeutic Farm (www.pillwillop.org). Contact him at email@example.com.
Super thankful for this post and your responses. I have a question: What are the proper steps to starting the non-profit counseling organization? I live in SC. I don’t know if the state matters or if it is the same pretty much across the board.
Hi Stewart, The author’s email is listed at the end of the article — feel free to reach out to him directly.
Thank you for this help! I am a psychologist looking to start a small nonprofit-the board is 3 members: my husband, me, and one other counselor. I am planning to bill insurance for the clients I serve. Can you say more about what you mean by this: “You would not usually have money from work at the nonprofit go directly to the employee from clients because this would likely cause some IRS-related issues and concerns beyond just that of tax liabilities.” Will I have IRS issues if I do what I am proposing? Thank you so much for clarifying! Additionally, my accountant wanted me to ask-are professional liability insurance rates any different for a nonprofit as compared to a for profit? Best, Emily
Hello Emily, the author’s email is listed at the bottom of the article — feel free to reach out to him directly. Thanks!
This is was a little helpful. However, my questions is how are overhead costs are taken into considerations for running a nonprofit organization along with salries of 2 or more employees of different level of trainings?
Therapy or treatment services may vary according to level of treatment. and so are the fees.
That will be hard to answer in a short format that is the reply field but I’ll do my best through a practical example…
A program I just consulted with was able to give me the following data: Monthly expenses: rent, utilities, average repair and related expenses. We added up the projected monthly expenses and then looked at the income potential of the workers as well as other regular sources of revenue. We did NOT figure that every employee was going to be fully booked: the director felt comfortable considering every clinician being at 60% capacity at any given moment. Those figures were compiled using an average reimbursement rate for each position as each position potentially gets reimbursed at different rates. The amount after overhead, was then divided into two groups: one for the agency to keep finances and the rest for pay/benefits for the employee. This all sounds very complicated I am sure especially without actual figures…
To make it short and simple: we came up with half the income from each employee going to pay and benefits and the other half staying with the company to cover overhead. This made for a competitive wage while also helping the company to survive. Many folks however just pick a flat rate to pay which is often a lot less than half, though they tend to have a higher turn over rate. I personally prefer the percentage method as it encourages the worker to keep session slots full and makes them also feel like a stakeholder not only in the practice as a whole but in their career as well.
I hope this helps.
With therapy services, who in the non profit does the office gist bill to contracted insurance companies? Can it be a volunteer ? The reason I ask is that I paid up front immediately after therapist visits to the therapist via IVY. She knows nothing about medical benefits. The so called “ceo”‘whom is never available to take calls or replies to them was suppose to do the billing. He never looked inn the insurance company portal to see if the deductible was met. It had been and now I am owed over &250.00. He claims that they bill in 45 days to the carrier which isn’t true based on the dates and timing of the eons that are finally available on Magellan’s portal for me to view. Seems absurd that a volunteer is doing the billing I think he’s trying to pass the buck and hit behind the 501c3. Please advise thank you
Integrity means everything to me
Hello — the author’s email is listed at the bottom of the article, feel free to reach out to him directly with questions.