The IRS acknowledges that churches are exempt organizations without requiring the filing of a Form 1023 application for recognition. However, other not-for-profit organizations must be “recognized” by the IRS as qualifying for 501(c)(3) status. In order to be “recognized” as a 501(c)(3) organization by the IRS, the organization must file a completed Form 1023 with all applicable attachments. There is a substantial filing fee that accompanies this form.
Being “recognized” as a 501(c)(3) organization not only exempts the organization from taxes on its income, but also allows charitable deductions to donors who give money or valuable assets to the organization. It is important to remember that “tax exempt” in the context of 501(c)(3) status refers only to income tax for the organization. It does not exempt the organization from income tax withholding. Not-for-profit organizations, like other employers, are required to carry out payroll withholding and pay the employer's share of payroll taxes for non-clergy employees.
Many states offer sales tax exemption for not-for-profit organizations which must be secured by applying for a tax exemption letter from the appropriate state revenue office. Depending on local law and custom, religious organizations may also be required to pay property taxes and other use taxes.
If you found this information helpful, you might be interested in this other resource from Brotherhood Mutual:
Learn more about ministry finance and taxation in our article, How "Unrelated Business Income" May Affect Your Ministry. The IRS also offers a helpful "Tax Guide for Churches and Religious Organizations."
Visit our Safety Library to find other articles, publications and tools on wide range of topics relevant to your ministry.
*Important information: Brotherhood Mutual is pleased to provide Legal Assist as a complimentary resource. The services we offer through Legal Assist are intended to provide general legal information to our current and prospective policyholders.
The information we provide is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. Accordingly, no attorney/client relationship is created through this process, and no legal advice will be provided. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.
Thank you for your interest in Brotherhood Mutual. We appreciate the opportunity to provide your church or other ministry with an insurance quote and will reply to your request as soon as possible.
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