Credit Unions & Taxes

Credit unions DO pay taxes. Credit unions federal tax exemption status only covers corporate income taxes. Credit unions pay millions of dollars in property taxes, sales tax and employment taxes each year. 

Credit unions were granted their not-for-profit tax status by Congress in 1917 in recognition of their unique, cooperative organizational structure. Because the tax exemption was granted by Congress, any change in the taxation of not-for-profit business entities is best addressed at the federal rather than the state level.

Congress exempted credit unions from paying income taxes because of their structure and purpose. Credit unions are not-for-profit organizations; therefore, any benefits credit unions receive from their tax exemption status is passed onto members.

Cooperatives like credit unions typically do not pay income tax because they must pay all their income to their members (who are the owners of the credit union). Credit unions, after transferring a portion of their income to reserves and loss accounts, must return all surplus earnings to the members as dividends, lower loan rates, and higher savings returns.
 

If credit unions were taxed, their earnings would be reduced and they would be able to return less to their members and communities. In reality, a tax on credit unions would be a tax on everyday citizens who are members of the credit union.