Yes, Hutterites pay taxes. Hutterite colonies owe federal income tax, property tax, and sales tax on their commercial activity, just like any other farm or business in the United States. The one meaningful exception is Social Security and Medicare: qualifying members can file to opt out of both the taxes and the benefits. Confusion on this point usually comes from the fact that individual Hutterites carry no money and draw no paycheck, but the colony itself is a taxable enterprise and files returns every year.
How the Common Purse Changes the Mechanics
Hutterite colonies pool all earnings into a shared fund often called the common purse. Members do not receive wages, hold personal bank accounts, or own property individually. The colony’s income comes primarily from farming and ranching, and in some cases manufacturing. Housing, food, clothing, healthcare, and education all come out of the central treasury.
Because there is no individual paycheck, federal tax law treats the colony as a single entity for income purposes and then allocates the taxable income to each adult member on paper. The tax obligation is real even though the cash never moves into a member’s hands.
Federal Income Tax Under Section 501(d)
Most Hutterite colonies are organized as religious and apostolic organizations under Section 501(d) of the Internal Revenue Code. That section covers organizations with a common treasury that conduct business for the collective benefit of their members. The colony itself is technically exempt from federal income tax under Section 501(a), but the exemption comes with a condition: every member must include their proportional share of the colony’s taxable income in their own gross income for the year, whether or not they actually received any money. Each member’s share is treated as a dividend under the statute.
In effect, this works as a pass-through. The colony earns income. The income is divided on paper among all adult members. Each member owes federal income tax on their allocated share, and the colony typically pays that tax out of the common treasury on the member’s behalf, since members have no personal funds.
The dividend classification also matters for a second reason. Because the allocated income is a dividend rather than earnings from a trade or business, it is not subject to self-employment tax. That is a 15.3% add-on for most self-employed people funding Social Security and Medicare. Hutterite members also qualify for a separate religious exemption from those taxes, but the dividend treatment is an independent reason the tax does not apply to colony income.
Which Returns Get Filed
Even though colonies are tax-exempt under Section 501(a), the ones organized under 501(d) do not file Form 990 like most nonprofits. The IRS requires them to file Form 1065, the same return used by partnerships. The 1065 reports the colony’s total income, deductions, and each member’s allocated share.
Individual members then report their distributive share on their personal federal returns. The Social Security Administration has noted that the share may show up as partnership income, dividends, or other income depending on how the colony’s accountant categorizes it. Most members have limited direct involvement in the filing, since the colony handles the paperwork and pays the resulting tax, but each member is legally responsible for the tax on their share.
The Social Security and Medicare Opt-Out
This is where Hutterites diverge most sharply from typical taxpayers. Two provisions of the tax code let qualifying religious communities opt out of Social Security and Medicare entirely.
Section 1402(g): Self-Employment Tax
Section 1402(g) lets an individual who belongs to a recognized religious sect apply for an exemption from self-employment tax. To qualify, the individual must be conscientiously opposed to accepting benefits from any private or public insurance covering death, disability, old age, retirement, or medical care. The sect must have a long-standing practice of providing for its dependent members and must have existed continuously since December 31, 1950. Hutterite colonies meet these tests.
Section 3127: Employer and Employee FICA
Section 3127 provides the parallel exemption on the employer-employee side. When a colony employs its own members, both the colony as employer and the member as employee can be exempt from FICA, which is the employer and employee portions of Social Security and Medicare. Both sides must belong to the same qualifying sect. If either side does not qualify, the exemption does not cover those wages.
Form 4029 and What Gets Waived
Both exemptions require the individual to file IRS Form 4029, “Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits.” By signing, the member waives all rights to Social Security retirement, disability, and survivor benefits, and to Medicare, both for themselves and for anyone who might otherwise claim benefits based on their earnings record. The Commissioner of Social Security must verify that the sect meets the statutory requirements before the exemption is approved.
The tradeoff is absolute. A Hutterite who signs Form 4029 cannot later collect Social Security at retirement or enroll in Medicare at 65. The colony’s communal system replaces those programs: housing, food, and medical care continue to come from the common treasury for life. For a member who eventually leaves the colony, the consequences can be severe, because they will have no Social Security earnings record and no Medicare eligibility for the years covered by the exemption.
Payroll Taxes on Outside Workers
The FICA exemption applies only when both the employer and the worker belong to the qualifying sect. If a colony hires outside workers who are not members, normal payroll tax rules apply in full. The colony must withhold the employee’s share of Social Security and Medicare and pay the employer’s matching share, the same as any other business.
Property Tax and Sales Tax
Colonies pay property tax on their land and buildings. Churches and other religious organizations can often claim property tax exemptions for buildings used exclusively for worship, but the vast majority of colony property is agricultural and commercial. Barns, grain storage, livestock facilities, equipment sheds, and the residential buildings members live in are generally taxable. A colony’s church building may qualify for a religious exemption in some jurisdictions, but that is a small fraction of a colony’s total property.
Colonies that sell goods to the public also collect and remit sales tax where applicable. A colony running a farm stand, selling grain commercially, or providing services to outside customers follows the same sales tax rules as any other business in that state. Communal ownership does not create a sales tax exemption.
Why People Think Hutterites Don’t Pay Taxes
The misconception usually comes from two visible facts: members carry no money, and no one receives a paycheck. From the outside, the community can look like it operates entirely outside the economy. In reality, the colony functions as a single large business that generates substantial taxable income, files federal returns, pays income tax on behalf of its members, and meets local property and sales tax obligations. The one genuine carve-out, Social Security and Medicare, exists because the colony provides those safety-net functions internally. Hutterites trade government benefits for community-based support, but they still owe tax on the income that funds it.