Support for the Credit Union Tax Exemption
Posted: Jul 18, 2018
Are credit unions tax exempt because of nonprofit status or because they provide a public service?
Credit unions pay property taxes, they pay employment taxes, and they may pay sales taxes. Credit unions do not pay federal income taxes. This is what it means when charters and laws state that credit unions are tax exempt.
Federal income taxes are not paid by credit unions because there is no income, or profit, in a non-profit entity. All the "earnings," i.e., the amount of revenue over and above the expenses, are distributed to the credit union’s members. No income equals no taxes. Thus, members enjoy added benefits by way of rewards paid by their credit union.
Reasons for Tax-Exempt Status of Credit Unions
The fact that there is no income in a credit union is not the reason Congress granted these community banks tax-exempt status. Rather, it is because credit unions satisfy a larger community civic or social need that they receive the not-for-profit status and tax exemption from the federal government.
Congress can fund and open a new governmental department if it desires to provide a social service to the American people. Or, it can provide tax breaks for organizations within the private sector. What types of social services do credit unions provide?
The Social Services of Credit Unions
The social services which the government wants to provide with credit unions are to:
- Make credit available to people of more modest means.
- Support a national system of cooperative credit, or pooling of resources.
- Promote thrift through cooperative savings.
- Teach financial education.
Congress sees credit unions as providing necessary public services the same way other social programs that the government may subsidize do. Everything in the above discussion contributes to a credit union’s ability to offer better rates, with fewer fees and excellent customer service.
Belco Community Credit Union provides unparalleled excellence through its variety of products including members-only checkings, savings, loans, business services, and investment vehicles.To find out more about Belco Community Credit Union, visit www.belco.org.