Yes, Hutterites pay taxes. A Hutterite colony organized under Section 501(d) of the Internal Revenue Code owes no entity-level income tax, but every member reports a pro rata share of the colony’s net income on a personal return and pays tax on it as dividend income.1Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. Colonies and their members can separately apply for exemption from Social Security and Medicare taxes, and most do. Property taxes, sales taxes, and fuel excise taxes apply the same way they apply to any farm or business.
Income Tax Passes Through to Individual Members
The colony itself doesn’t pay federal income tax, but the tax obligation doesn’t vanish. It moves to the members.
Section 501(d) exempts the colony from corporate income tax on one condition: every member must include their full share of the colony’s taxable income in personal gross income each year, whether or not any of it was actually distributed.1Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. The colony calculates its taxable income using corporate rules, files Form 1065, and issues each member a Schedule K-1 reporting the allocated amount as ordinary dividends.2Internal Revenue Service. Instructions for Form 1065 (2025) The money stays in the common treasury; the IRS treats it as if each member received a dividend.
What any individual member actually owes depends on the size of their share and available deductions. A colony’s net income is divided among all its members, so a profitable operation with many members may allocate a fairly modest share to each person, and the standard deduction can reduce or eliminate the resulting bill. The filing obligation is real, though, and the colony typically prepares the paperwork on members’ behalf.
Housing, food, clothing, medical care, and education provided from the common treasury are not counted as income to the member.3Social Security Administration. POMS SI DEN00501.010 – Hutterite Colonies Members receive no wages and generally hold no personal bank accounts.
Outside Income Is Taxed Normally
If a member earns money from a source outside the colony, that income is taxable under the standard rules. The Social Security Administration counts outside earnings as income to the individual in the month received, even when the member turns it over to the colony under membership rules.3Social Security Administration. POMS SI DEN00501.010 – Hutterite Colonies It rarely comes up, since colony life is structured to be self-contained.
Social Security and Medicare Taxes Can Be Waived
Hutterite colonies and their members can apply for exemption from Social Security and Medicare taxes. This is a separate framework from the income tax rules and operates under a different section of the code.
Section 3127 exempts employer and employee FICA taxes when both parties are members of a recognized religious sect that is conscientiously opposed to accepting insurance benefits, including Social Security, disability, and Medicare.4Office of the Law Revision Counsel. 26 USC 3127 – Exemption for Employers and Their Employees Where Both Are Members of Religious Faiths Opposed to Participation in Social Security Act Programs A parallel provision in Section 1402(g) covers the self-employment tax side.5Office of the Law Revision Counsel. 26 USC 1402 – Definitions Hutterite colonies qualify: their communal structure predates the statutory cutoff by centuries, they provide all necessities internally, and their beliefs oppose reliance on government insurance.6Internal Revenue Service. Form 4029 – Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits
The exemption is not automatic. Each member files Form 4029, which serves as both the application and a permanent waiver of Social Security and Medicare benefits. The colony files as the employer. Once approved, the exemption takes effect on the first day of the first quarter after the quarter the form is filed.6Internal Revenue Service. Form 4029 – Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits
The trade-off is permanent. No FICA is withheld, and the colony pays no employer share, but the member gives up any claim to Social Security retirement, disability, or Medicare benefits. A member who previously collected any Social Security benefits cannot claim the exemption unless the benefits are repaid.4Office of the Law Revision Counsel. 26 USC 3127 – Exemption for Employers and Their Employees Where Both Are Members of Religious Faiths Opposed to Participation in Social Security Act Programs
Taxes Colonies Still Pay
The federal exemptions cover entity-level income tax and payroll taxes for qualifying members. They cover nothing else. Colonies run large farming, ranching, and manufacturing operations, and they pay the same taxes any commercial business pays in several categories.
- Property taxes on all real estate, including farmland, production buildings, and housing. Agricultural land may qualify for reduced assessment rates depending on the jurisdiction, but no blanket religious exemption applies.
- Sales taxes collected and remitted on taxable goods sold to outside buyers, following the same rules as any farm or commercial vendor.
- Federal and state fuel taxes on the gasoline and diesel used in farming and transportation, along with excise taxes on heavy equipment and commercial licenses.
The communal religious structure provides no shelter from consumption taxes, property assessments, or business activity levies. When people say Hutterites don’t pay taxes, they are usually thinking only of the FICA exemption and the pass-through income structure while overlooking substantial property and sales tax bills.
Payroll Taxes for Non-Member Employees
The Section 3127 FICA exemption only applies when both the employer and the employee are members of the same qualifying sect. When a colony hires outside workers, standard payroll rules apply.4Office of the Law Revision Counsel. 26 USC 3127 – Exemption for Employers and Their Employees Where Both Are Members of Religious Faiths Opposed to Participation in Social Security Act Programs The colony must withhold the employee’s share of Social Security and Medicare taxes and pay the employer’s share, just like any other employer. The National Taxpayer Advocate has noted the resulting asymmetry: a colony member working inside the colony pays no FICA, but a non-member doing identical work owes FICA on the same wages.7Taxpayer Advocate Service. Legislative Recommendation 57 – Allow Members of Certain Religious Sects That Do Not Participate in Social Security and Medicare to Obtain Employment Tax Refunds Colonies hiring seasonal labor or specialized contractors budget for these standard employer costs.
What Happens If a Member Leaves
Leaving a colony carries steep tax and benefit consequences. Because the common treasury owns all property, a departing member generally leaves with no personal assets, no savings, and no ownership stake in the land or equipment.
If the member filed Form 4029 and waived Social Security coverage, they have no credits in the system for any years spent in the colony. They can begin earning credits through outside work after leaving, but they start from zero. Qualifying for Social Security retirement benefits requires 40 work credits, roughly 10 years of covered employment, so a member who leaves late in life may never qualify. Medicare eligibility is affected the same way, which means securing private health insurance or, if eligible, enrolling in marketplace coverage.
Once a former member starts working outside, standard federal taxes apply in full: income tax on wages, FICA withholding, and self-employment tax where applicable. The shift from a system where basic needs were communally provided to one where everything must be individually funded is one of the steepest practical barriers to leaving colony life.