Churches And Tax Exemption

Necessity Of Churches To File Tax Returns

According to the rules and regulations set up by IRS, most of the churches or its similar supplementary organisations that fall under the category and registered as Non Profit Organisations have been exempt from income Tax Return Filing. This includes being exempted from federal income tax, unemployment taxes, etc. These churches need not file for obtaining the status of tax exemption nor do they need to file all of its annual returns information. Also, the contributions made by donors to churches can be written off on their personal income tax returns as well.

However the churches are supposed to perform tax return filing with the Internal Revenue Service or the IRS for all those activities which do not fall under the non profit category. And even though the church is exempt from filing income tax returns, this does not mean the employment taxes need not be deducted from the employees of the church. Also the Social Security and Medicare taxes for the church holds some special rules.

Tax Exemption For Churches

Church is used as a term generally used to refer to all places of worship including mosques, temples,etc within the IRS rules. In order for a church to be exempted from tax return filing and other tax benefits ,it should qualify for a minimum of five criteria within the 501(c)(3) section of the IRS codes. About 14 such criteria have been mentioned within this section. The IRS has not yet clearly defined on which all criteria needs to be met or are important for an organisation to be recognised as a church and receive tax benefits. Some of these criteria includes :-
Necessity Of Churches To File Tax Returns

  • It is an identified form of worship
  • It has a set of rules and doctrines of its own
  • It is legally recognised
  • It has a defined ministerial body of governance
  • Possess a religious history
  • Its membership not linked to any other denomination
  • Has an authentic place of worship
  • Priests school
  • Religious school for the young, etc

Churches automatically become exempt from tax return filing if it qualifies under the above set of criteria. But they can also acquire the status by applying for an official tax exemption status from the IRS to ensure that they receive all benefits. Check Out – about why churches don’t pay taxes?

This tax exemption for churches has another huge advantage as it encourages donors to contribute or donate more so that they enjoy the privilege of tax benefits as well. This includes having the benefit of deducting 50 % of their total annual income and thus decreasing the taxable income. This can result in tax savings for the donor.Even though churches need to acknowledge the donations made by the donors with written documents if it is 250 dollars or more, they can neglect doing so as it falls under the religious purpose category.

Taxable Campaigns Of Churches

Interior of a beautiful old catholic church
There are some activities or campaigns of the church that cannot be exempted and are subjected to tax payment. Income of the church can either fall into taxable category or not depending on whether it was utilized for religious benefits or not. For example, if the earning of a church comes from selling religious manuscripts and books, then it is considered as a religious income which is not taxable even though it is not a donation. However if the church raises money for its activities and functions through non religious campaigns, sales or such, then it might need to pay taxes on the amount earned even if it was ultimately used for religious functions.

If the income earned through non religious activities exceeds a 1000 dollars in an annual year, tax should be paid for the excess amount and the church should file the 990 T form. The employees of the church have taxes deducted from their salary for Social Security and Medicare. But if an employee of the church is an ordained minister, then there will be an exemption and the tax need not be deducted.

In certain scenarios, the church is not willing to deduct any kind of Social Security or Medicare tax from the employees in which case the exemption can be made by filing the 8274 form. Form W 2 and Form 1099 MISC are supposed to be issued by the church to its employees and contractors respectively for their individual Tax Return Filing.

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