Churches do file tax returns, just not the ones most nonprofits file. A church is automatically exempt from federal income tax and from the annual Form 990 information return, but it still owes the IRS payroll returns for its employees, a Form 990-T if it earns money from activities unrelated to its religious mission, and written paperwork for certain donors. The exemption is narrower than it sounds, and the returns a church does owe carry ordinary penalties when they are missed.
What Churches Don’t File
Churches, their integrated auxiliaries, and conventions or associations of churches are automatically treated as tax-exempt public charities under Section 501(c)(3). Unlike other nonprofits, they do not have to file Form 1023 to obtain that status.1Internal Revenue Service. Churches, Integrated Auxiliaries and Conventions or Associations of Churches
They also do not file Form 990, Form 990-EZ, or Form 990-N, the annual information returns that every other 501(c)(3) organization must submit. Section 6033(a)(3)(A)(i) of the Internal Revenue Code carves churches out of that requirement by statute.2Office of the Law Revision Counsel. 26 USC 6033 – Returns by Exempt Organizations Because there is no annual return to miss, churches also cannot lose their exempt status through the automatic revocation that hits other nonprofits after three consecutive years of unfiled 990s.1Internal Revenue Service. Churches, Integrated Auxiliaries and Conventions or Associations of Churches
That is where the blanket exemption ends. Every other filing obligation on this page can and does apply to churches.
Form 990-T: Unrelated Business Income
If a church earns money from a venture that is not substantially related to its religious mission, that income can be taxable. The activity has to meet three conditions: it qualifies as a trade or business, it is regularly carried on, and it is not related to the church’s exempt purpose.3Internal Revenue Service. Unrelated Business Income Tax
Common examples include renting a parking lot to weekday commuters, selling advertising in the bulletin to local businesses, or running a bookstore open to the general public stocked largely with non-religious merchandise. Occasional fundraisers staffed by volunteers generally do not qualify, because sporadic activities are not “regularly carried on.”
When a church’s gross income from all such unrelated activities reaches $1,000 or more in a year, it must file Form 990-T to report the income and calculate any tax owed.4Internal Revenue Service. Instructions for Form 990-T (2025) The tax applies to net income, so expenses directly connected to the activity are deductible. Filing Form 990-T does not endanger the church’s exempt status as long as the commercial activity stays secondary to the religious mission.
Rental Income From Mortgaged Property
One trap catches churches that own investment real estate. Under Section 514, if a church holds property purchased with borrowed money and collects rent on it, a portion of that rental income can be taxable unrelated business income even though rent normally is not. The taxable share generally corresponds to the percentage of the property still financed by debt.5Internal Revenue Service. Unrelated Business Income From Debt-Financed Property Under IRC Section 514
Exceptions apply when substantially all of the property is used for the church’s exempt purpose, or when the church plans to use nearby land for exempt purposes within a set timeframe. A church that buys a rental property with a loan should plan on reporting the income on Form 990-T.
Payroll Returns for Church Employees
Tax-exempt status does not exempt a church from its duties as an employer. Payroll is the area where churches file the most returns and face the steepest penalties for mistakes.
Form 941 Every Quarter
A church must withhold federal income tax from the wages of its non-minister employees and pay both the employer and employee shares of Social Security and Medicare (FICA) taxes. Those withholdings and payments are reported on Form 941, filed four times a year.6Internal Revenue Service. Members of the Clergy
Ministers are treated differently. For Social Security and Medicare purposes, ministers are generally classified as self-employed regardless of their employment arrangement with the church, so the church does not withhold FICA from a minister’s pay. The minister instead pays self-employment tax directly under SECA.6Internal Revenue Service. Members of the Clergy The church still files Form 941 for its non-minister staff.
Electing Out of FICA
A church or church-controlled organization that objects on religious grounds to paying employer Social Security and Medicare taxes can elect out of FICA entirely by filing Form 8274. The election has to be filed after hiring employees but before the first quarterly employment tax return would be due.7Internal Revenue Service. Elective FICA Exemption – Churches and Church-Controlled Organizations Once the election is made, non-minister employees become responsible for paying self-employment tax on their church wages, and the election covers all current and future employees.
No Federal Unemployment Tax
Federal unemployment tax works differently. No election is required. Service performed for a 501(c)(3) religious organization is excluded from the statutory definition of covered employment, so churches are automatically exempt from FUTA.8Office of the Law Revision Counsel. 26 US Code 3306 – Definitions
Year-End Wage and Contractor Reporting
Beyond the quarterly Form 941, a church must issue Form W-2 to every employee by February 1 following the tax year and file copies with the Social Security Administration by the same date.9Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026) When the church pays $600 or more to an independent contractor during the year, it must file Form 1099-NEC with the IRS and furnish a copy to the contractor by January 31.10Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
Donor Paperwork the Church Must Produce
Churches skip Form 990, but they still have paperwork tied to the contributions they receive. It is easy to overlook because the recipient is the donor rather than the IRS, but handling it wrong can cost donors their deductions.
Written Acknowledgments for Gifts of $250 or More
A donor who contributes $250 or more in a single gift cannot claim a deduction without a written acknowledgment from the church. The acknowledgment must include the church’s name, the amount of any cash contribution or a description of any noncash property, and a statement about whether the church provided goods or services in return. If it did, the acknowledgment has to include a good-faith estimate of the value.11Internal Revenue Service. Charitable Contributions: Written Acknowledgments
Quid Pro Quo Disclosures Over $75
When a donor pays more than $75 partly as a contribution and partly in exchange for something of value, such as a fundraiser dinner, the church must provide a written disclosure telling the donor that only the amount exceeding the fair market value of what they received is deductible.12Internal Revenue Service. Charitable Organizations: Substantiation and Disclosure Requirements
Noncash Gifts Over $5,000
When someone donates property worth more than $5,000 (other than publicly traded securities), the donor attaches Form 8283 to their return. An authorized church official has to sign Part V of that form, acknowledging receipt of the property, and the church should keep a copy.13Internal Revenue Service. Charitable Organizations: Substantiating Noncash Contributions
What Happens When a Church Misses a Return
The returns a church does owe carry the same penalties as any other filer’s returns. There is no lighter touch.
A late Form 990-T triggers a failure-to-file penalty of 5% of the unpaid tax for each month the return is late, capped at 25%. A separate failure-to-pay penalty of 0.5% per month accrues on any unpaid balance. When both apply in the same month, the filing penalty is reduced by the payment penalty amount so the two do not fully stack.14Internal Revenue Service. Failure to File Penalty
Employment tax failures are where things get personal. Amounts withheld from employee paychecks are trust fund taxes, meaning the church holds them on behalf of the government. If those withheld amounts are not deposited, the IRS can impose a Trust Fund Recovery Penalty equal to the full amount unpaid. The penalty does not stop at the organization. The IRS can assess it against any individual who was responsible for collecting and paying the taxes and willfully failed to do so, typically the treasurer, business administrator, or pastor who signs the checks. In extreme cases of ongoing non-compliance, the IRS retains authority to revoke the church’s tax-exempt status.
State Registration Is a Separate Question
Federal filings are only part of the picture. Most states require charities that solicit donations to register with a state agency, and most of those states exempt churches, though the exemption is not always automatic. Some states require a church to file a formal exemption application before it can solicit without registering. Hiring professional fundraisers or paid solicitors can trigger registration requirements regardless of religious status. Rules vary significantly, so a church soliciting donations beyond its local congregation should verify its obligations with the appropriate state agency.