Are Religious Organizations Tax-Exempt?

Religious organizations are generally tax-exempt under federal law. This means that, like other nonprofit organizations, they do not pay federal income tax and receive other benefits. Donors may also qualify for tax deductions on charitable contributions to these organizations, subject to limitations under federal tax law.

Understanding how this protection works and maintaining this protected status helps both your mission and your peace of mind. If you or your organization needs help with your tax-exempt status, contact an experienced tax law attorney in your area.

Legal Basis for Religious Tax Exemption

The U.S. Supreme Court has held that exempting religious property from taxation does not violate the Establishment Clause of the First Amendment. The Internal Revenue Service (IRS) grants exemptions to qualifying religious organizations.

A recent case, Catholic Charities Bureau v. Wisconsin (2025), has reshaped how states must treat faith-based organizations seeking exemption.

Background of the Catholic Charities Bureau v. Wisconsin Case

Catholic Charities Bureau is the social arm of a religious organization in Wisconsin. Since 1917, it has served people in need. The organization provides services to everyone, regardless of faith. It does not require religious instruction or attempt to convert those it helps.

Several of the Catholic Charities Bureau sub-entities sought an exemption from Wisconsin’s unemployment insurance contributions.

The Wisconsin Supreme Court denied the exemption, concluding that the organization’s work was more in line with that of a secular service agency than with that of a religious organization because the charity’s work did not involve worship or proselytizing.

The U.S. Supreme Court’s Decision in Catholic Charities Bureau v. Wisconsin

The Supreme Court handed down a unanimous decision striking down the Wisconsin Supreme Court decision. Authored by Justice Sotomayor, the Court struck down the decision denying the charity unemployment tax exemptions because it helped people of other faiths.

The Court held that a state cannot judge how a group exercises its faith through particular practices. It found that that requirement would amount to an unconstitutional preference between religions.

What the Catholic Charities Bureau v. Wisconsin Decision Means for Your Religious Organization

The Catholic Charities Bureau v. Wisconsin means your organization does not lose its status as a public charity entitled to tax-exempt status when a state or state agency deems the activities not “religious enough.”

For charities, ministries, affiliated non-profits, and integrated auxiliaries, the decision affirms the position that serving the community is a valid expression of faith.

How Your Organization Qualifies for Tax-Exempt Status

Section 501(c)(3) is the primary section of the Internal Revenue Code governing tax-exemption requirements for religious organizations.

The basic requirements for tax exemption are as follows:

• Organized and operated exclusively for religious, charitable, educational, or similar purposes
• No part of the organization’s earnings may benefit private individuals or insiders
• Resources must serve the mission and not be used for personal gain

Tax-exempt status allows your organization to obtain benefits, including sales and property tax exemptions and relief from certain payroll taxes, among others.

Activities That Can Jeopardize Your Religious Organization’s Tax-Exempt Status

Once your organization obtains its tax-exempt status, it is important to avoid engaging in activities that could jeopardize that exemption. These activities can include:

• Devoting a disproportionate amount of time and resources to lobbying or making an attempt to influence legislation
• Participating in or intervening in political campaigns
• Engaging in illegal activities or ones that violate fundamental public policy considerations

Some activities a non-profit organization participates in may be taxable, such as unrelated business income. This is revenue from an unrelated business activity that the organization regularly engages in. However, this does not jeopardize your tax-exempt status; it just means that such income is taxable, even though the organization’s tax-exempt.

A tax-exempt organization that does not file a required annual return or notice for three consecutive years automatically loses its tax-exempt status.

The Process for Claiming Tax-Exempt Status

The type of organization you are determines the particular steps for obtaining recognition as a tax-exempt entity.

Automatic Exemption for Churches

Churches (including integrated auxiliaries and conventions or associations of churches) that meet the 501(c)(3) requirements are automatically considered tax-exempt.

However, many churches seek out tax-exempt status because it reassures the community and donors that their contributions will be deductible to the fullest extent allowed by tax law.

Applying for Recognition: Form 1023

In general, religious organizations that are not churches must apply for recognition by using IRS Form 1023. Such organizations may also choose to file the streamlined Form 1023-EZ.

An employer identification number is required before applying. Timing matters. It’s critical to apply within the required window for your organization.

Obtaining IRS Recognition

When your application is approved, the IRS will issue a determination letter confirming your tax-exempt status and your eligibility to receive tax-deductible contributions.

At this point, it’s critical to stay in good standing. Maintain careful records and ensure compliance with any applicable annual filing requirements.

Consult a Tax Attorney

Tax law can get complicated very quickly. Experienced legal counsel can provide invaluable advice. If your organization’s exemption is challenged, denied, or under audit, legal counsel can be especially helpful. They can also advise about other issues such as unrelated business income, lobbying concerns, or state-level disputes.

It’s critical to protect your mission and secure or maintain your tax-exempt status. If your organization needs legal help, use the Super Lawyers directory to find an experienced tax law attorney in your area today.