Churches do not have to file Form 990. Federal law exempts churches, their integrated auxiliaries, and conventions or associations of churches from filing any version of the annual information return, including Form 990, Form 990-EZ, and the electronic Form 990-N postcard. The exemption is automatic, does not expire, and does not require an application. It does not, however, relieve a church of every federal filing: payroll returns, unrelated business income tax returns, and donor acknowledgments still apply, and the substantive rules that govern all 501(c)(3) organizations still apply too.
The exemption comes from 26 U.S.C. § 6033(a)(3)(A)(i), which lists churches and their closely related religious entities as a mandatory exception to the general rule that tax-exempt organizations file annual information returns.1Office of the Law Revision Counsel. 26 USC 6033 – Returns by Exempt Organizations A church does not report its revenue, expenses, governance, or programs to the IRS the way other 501(c)(3) nonprofits do. The Treasury regulations confirm that churches, interchurch organizations of local units, conventions or associations of churches, and integrated auxiliaries are all excluded from filing.2eCFR. 26 CFR 1.6033-2 – Returns by Exempt Organizations and Returns by Certain Nonexempt Organizations Even the simplified Form 990-N, which other small nonprofits with gross receipts of $50,000 or less can use, is not required.
Whether Your Organization Counts as a Church
The Internal Revenue Code does not define “church.” The IRS instead uses a set of characteristics drawn from administrative practice and court decisions, sometimes called the 14-point test. No single factor decides the question; the agency weighs the overall facts and circumstances.3Internal Revenue Service. Definition of Church
The characteristics the IRS considers include:
- A distinct legal existence
- A recognized creed and form of worship
- A definite and distinct form of church government
- A formal code of doctrine and discipline
- A distinct religious history
- A membership not associated with any other church or denomination
- An organization of ordained ministers
- Ordained ministers selected after completing prescribed courses of study
- A literature of its own
- Established places of worship
- Regular congregations
- Regular religious services
- Sunday schools or equivalent religious instruction for young people
- Schools for training its ministers
An organization does not have to satisfy every characteristic. A group meeting most of them will have a stronger case than one meeting only a few. A standalone religious ministry with no regular congregation and no established place of worship would generally not qualify for the church filing exemption, and would need to file Form 990 like any other 501(c)(3).
Integrated Auxiliaries and Associations
The filing exemption reaches beyond the church itself. Treasury regulations define an integrated auxiliary as an organization that is described under section 501(c)(3), is affiliated with a church or convention of churches, and is internally supported.2eCFR. 26 CFR 1.6033-2 – Returns by Exempt Organizations and Returns by Certain Nonexempt Organizations
Affiliation can be shown by coverage under a group exemption letter issued to a church, by being operated or supervised in connection with a church, or by other facts showing a close relationship. The internal support test is structured as a two-part failure: an organization fails only if it both offers goods or services to the general public beyond an incidental basis and normally receives more than 50 percent of its support from government sources, public fundraising, and sales of goods or services. Religious schools, mission societies, and youth ministries tightly connected to a parent church often qualify.
A religiously affiliated social service agency that operates independently of a church’s direct control and draws most of its funding from public sources typically does not. It would file Form 990 or Form 990-EZ under the rules that apply to secular charities.
Religious Organizations That Are Not Churches
Parachurch ministries, faith-based advocacy groups, religious publishers, and interfaith service organizations that lack the characteristics of a church must file annual information returns.4Internal Revenue Service. Filing Requirements for Churches and Religious Organizations The form depends on size: Form 990 for organizations with gross receipts of $200,000 or more or total assets of $500,000 or more; Form 990-EZ for organizations under both thresholds; and Form 990-N for organizations with gross receipts normally $50,000 or less. A religious nonprofit that fails to file any required return for three consecutive years will automatically lose its tax-exempt status, and reinstatement requires a new application and a new user fee.
Form 990-T: The Return Churches Do File
The one federal information-style return a church may still owe is Form 990-T. A church must file it if it earns $1,000 or more in gross income from an unrelated trade or business.5Internal Revenue Service. Instructions for Form 990-T Unrelated business income comes from activities that are regularly carried on and are not substantially related to the church’s religious or educational purposes.
Typical examples include running a commercial parking lot open to the public, renting out mortgaged church property (debt-financed income), or operating a retail store selling goods unrelated to the church’s mission. Tithes, offerings, and fundraising events run primarily by volunteers are generally not unrelated business income.
Unrelated business income is taxed at the corporate rate. Under 26 U.S.C. § 511, the tax is computed using the rates in section 11, currently a flat 21 percent.6Office of the Law Revision Counsel. 26 USC 511 – Imposition of Tax on Unrelated Business Income of Charitable Organizations Churches can deduct expenses directly connected to the unrelated activity and take a $1,000 specific deduction against taxable income.7Office of the Law Revision Counsel. 26 USC 512 – Unrelated Business Taxable Income Dioceses, provinces of a religious order, and conventions of churches receive an additional $1,000 deduction for each local unit that generates unrelated business income.
For a church on a calendar year, Form 990-T is due May 15 of the following year, shifting to the next business day if that date falls on a weekend or legal holiday. A church expecting a UBIT liability of $500 or more must make quarterly estimated tax payments.8Internal Revenue Service. Estimated Tax – Unrelated Business Income Failing to file when required triggers the standard failure-to-file penalty of 5 percent of the unpaid tax per month (or partial month), capped at 25 percent, with interest running from the original due date.9Internal Revenue Service. Failure to File Penalty
Any Form 990-T filed after August 17, 2006 must be made available for public inspection, including schedules and attachments related to the unrelated business income tax. Documents filed with the return that do not relate to UBIT, such as Form 5471, are not subject to disclosure.10Internal Revenue Service. Guidance – Public Inspection of Unrelated Business Income Tax Returns
Payroll and Employment Tax Forms
Churches with staff have the same federal payroll obligations as other employers, with a few exceptions. A church must withhold federal income tax from employees’ wages and withhold and pay the employer’s share of Social Security and Medicare taxes. Those amounts are reported on Form 941 each quarter, or on Form 944 annually if the IRS has notified the church it qualifies. Every employee, including ministers, receives a Form W-2. Independent contractors paid above the reporting threshold receive Form 1099-NEC.
Churches are exempt from the Federal Unemployment Tax Act. Under 26 U.S.C. § 3306(c)(8), service performed for an organization described in section 501(c)(3) and exempt from income tax is excluded from the definition of employment for FUTA purposes.11Office of the Law Revision Counsel. 26 USC 3306 – Definitions No federal unemployment tax is owed on wages paid to church employees. State unemployment rules vary.
Ministers occupy a dual position. For income tax purposes, a minister employed by a church is treated as an employee. For Social Security and Medicare, the same minister is treated as self-employed and pays self-employment tax rather than having FICA withheld. The church reports the minister’s wages on Form W-2 but does not withhold Social Security or Medicare taxes.
Donor Contribution Receipts
Not filing Form 990 does not eliminate a church’s obligations to donors. When a donor contributes $250 or more, the donor needs a written acknowledgment from the church to claim a deduction. The acknowledgment must include the church’s name, the amount of any cash contribution or a description of any non-cash donation, and a statement about whether the church provided any goods or services in return.12Internal Revenue Service. Charitable Contributions – Written Acknowledgments If the church provided only intangible religious benefits, such as attendance at worship services, the acknowledgment should say so.
Failing to issue proper receipts does not create a penalty for the church, but it prevents donors from substantiating their deductions. A reliable acknowledgment system is a practical necessity for any church that accepts contributions.
Rules That Can Still Cost a Church Its Exemption
The filing exemption is procedural. The substantive 501(c)(3) rules still apply, and violations can lead to excise taxes, penalties, or revocation of tax-exempt status.13IRS. How to Lose Your Tax Exempt Status Without Really Trying
Churches are absolutely prohibited from participating or intervening in any political campaign for or against a candidate for public office. The ban covers endorsements, campaign contributions, distributing campaign literature, and public statements for or against candidates.14Internal Revenue Service. Charities, Churches and Politics Limited lobbying on legislation and ballot measures is allowed, but lobbying cannot become a substantial part of the church’s activities.
No part of a church’s net earnings can benefit any private individual, especially insiders such as pastors, board members, officers, or their family members. Unreasonable compensation, personal loans on favorable terms, and below-market transfers of church property to insiders can all count as private inurement.15Internal Revenue Service. Inurement/Private Benefit – Charitable Organizations The IRS can impose excise taxes on both the individual who received the excess benefit and on managers who knowingly approved the transaction.
A church must continue operating for the religious and charitable purposes it was organized to pursue. Drifting substantially into commercial activities, accumulating excessive unrelated business income, or abandoning religious functions can put exempt status at risk.