To start a church legally, you incorporate as a nonprofit with your state, obtain an Employer Identification Number from the IRS, and adopt bylaws that govern how the church operates. Churches are automatically treated as tax-exempt under Section 501(c)(3) without filing an application, but most still apply for a formal IRS determination letter and must handle minister payroll, state compliance, and donation records carefully from day one.
Pick a Legal Structure
An unincorporated group forms the moment people gather for a shared purpose, no paperwork required. It is also the riskiest option: members and leaders can be held personally responsible for the group’s debts and lawsuits. For a small home Bible study handling no real money, that may be tolerable. For anything larger, it is not.
Incorporating as a nonprofit corporation creates a separate legal entity that owns its own property, signs its own contracts, and shields directors and officers from personal liability for the church’s obligations, provided they act in good faith. Banks generally require it before opening institutional accounts, and grant-makers expect it.
Some states offer a dedicated “religious corporation” category alongside their general nonprofit statute. Where it exists, that form can grant extra autonomy over internal governance and relief from certain compliance requirements that apply to other nonprofits. States without one still protect religious decision-making through provisions in the general nonprofit code. Your state’s Secretary of State website will show which options are available.
File Articles of Incorporation
Incorporation happens by filing a document with the state, usually called Articles of Incorporation or a Certificate of Incorporation. You’ll need a church name that isn’t already registered, a principal address, initial directors, and a registered agent authorized to receive legal documents on the church’s behalf.
Two clauses in the Articles carry outsized weight for federal tax purposes. The purpose clause must state that the organization is formed exclusively for religious purposes. The dissolution clause must direct any remaining assets, if the church ever shuts down, to another tax-exempt organization rather than to individuals. Both are required for 501(c)(3) status. Leaving either out means amending the Articles later.
Filing fees vary by state. A handful charge as little as $8 or $20; others run into the hundreds. Most fall between $25 and $125. Current forms, fees, and processing times are posted on each state’s Secretary of State website, and many states offer expedited handling for an extra charge.
Get an Employer Identification Number
Once the state approves your Articles, apply to the IRS for an Employer Identification Number. This nine-digit number identifies the church for tax purposes and is required to open a bank account, hire staff, and handle payroll.1Internal Revenue Service. Get an Employer Identification Number
The IRS online application issues an EIN immediately, and it’s free. You can also apply by fax or mail using Form SS-4. Third-party sites that charge for an EIN are selling something you can get directly from the IRS at no cost.1Internal Revenue Service. Get an Employer Identification Number
One sequencing detail matters: the IRS will not issue an EIN until your entity is legally formed with the state. Applying before the Articles are approved can get the application delayed or rejected.2Internal Revenue Service. Obtaining an Employer Identification Number for an Exempt Organization
Federal Tax-Exempt Status
Churches occupy a unique spot in the tax code. Under 26 U.S.C. ยง 508(c), churches, their integrated auxiliaries, and conventions or associations of churches are automatically treated as tax-exempt under Section 501(c)(3) without filing an application.3Office of the Law Revision Counsel. 26 USC 508 – Special Rules With Respect to Section 501(c)(3) Organizations They’re also exempt from the annual Form 990 information return that other nonprofits must file.4Office of the Law Revision Counsel. 26 USC 6033 – Returns by Exempt Organizations
Automatic exemption applies only to organizations that actually function as churches. When the question comes up, the IRS looks at a set of characteristics: a recognized creed, a definite form of worship, ordained ministers, regular congregations, an established place of worship, and regular services.5Internal Revenue Service. Definition of Church No single factor decides it, but an organization that checks few of them will have trouble claiming church status.
Why Apply for a Determination Letter Anyway
Many churches file Form 1023 for a formal IRS determination letter despite the automatic exemption. The letter is definitive proof of tax-exempt status, and in practice that proof matters. Donors want assurance their contributions are deductible. Grant-making foundations routinely require the letter before funding. Vendors and state agencies often will not extend tax-exempt pricing or state-level exemptions without one.
The Form 1023 user fee is $600.6Internal Revenue Service. Form 1023 and 1023-EZ: Amount of User Fee The application requires certified Articles, adopted bylaws, narrative descriptions of programs, and financial data. Processing can take several months. Note one boundary: the streamlined Form 1023-EZ is not available to organizations seeking recognition as a church. You must use the full Form 1023.7Internal Revenue Service. Instructions for Form 1023-EZ
Write Bylaws and Governance Policies
The Articles create the entity. The bylaws run it. Well-drafted bylaws prevent the internal disputes that can tear a young church apart. At a minimum, bylaws should address:
- Membership qualifications and voting rights
- How directors or elders are selected, how many serve, and what authority they hold
- How officers such as the president, secretary, and treasurer are appointed and removed
- How often the board and membership meet, quorum requirements, and how notice is given
- Who can spend money, sign checks, and approve budgets
- How the bylaws themselves can be amended
Two additional policies are worth adopting from the start. A conflict of interest policy requires board members to disclose personal financial interests in any transaction the church is considering and to recuse themselves from voting on it. The IRS asks about this policy on Form 1023, so having it in place early saves work later.
An indemnification clause commits the church to cover directors’ and officers’ legal expenses if they’re sued over decisions made in their official capacity, so long as they acted in good faith. A common approach is a short statement in the Articles indemnifying directors “to the fullest extent permitted by law,” with more detailed procedures in the bylaws.
Pay Ministers Correctly
Ministers have a dual status under federal tax law that surprises nearly every new board. They are treated as employees for income tax purposes but as self-employed for Social Security and Medicare.8Internal Revenue Service. Earnings for Clergy The church typically reports a minister’s salary on a W-2 but does not withhold Social Security or Medicare taxes. The minister pays self-employment tax on that income through Schedule SE.
Services performed by an ordained, commissioned, or licensed minister in the exercise of ministry are excluded from the definition of “employment” for FICA purposes.9Office of the Law Revision Counsel. 26 USC 3121 – Definitions Churches with a religious objection to paying the employer share of Social Security and Medicare can elect a broader FICA exemption for all employees by filing Form 8274 before the first quarterly employment tax return would be due.10Internal Revenue Service. Elective FICA Exemption – Churches and Church-Controlled Organizations Most churches do not make this election.
The Housing Allowance
Section 107 of the Internal Revenue Code lets a church designate part of a minister’s salary as a housing allowance, and that portion is excluded from the minister’s gross income for income tax purposes.11Office of the Law Revision Counsel. 26 USC 107 – Rental Value of Parsonages If the church provides a parsonage instead, the fair rental value of the home is also excluded.
The excludable amount is the smallest of three figures: the amount officially designated in advance as a housing allowance, the amount actually spent on housing, or the fair rental value of the home including furnishings and utilities.12Internal Revenue Service. Ministers’ Compensation and Housing Allowance The designation must happen before the payment is made, not after the fact. Any excess is reported as wages.
Here’s the catch boards often miss. The housing allowance is excluded only from income tax. It still counts as net earnings for self-employment tax. A minister receiving a $30,000 housing allowance pays no income tax on it but still owes self-employment tax on the full amount.8Internal Revenue Service. Earnings for Clergy
Keep Your Tax-Exempt Status
Three rules trip up churches after they’ve set up.
No Political Campaign Activity
All 501(c)(3) organizations, churches included, are absolutely prohibited from participating or intervening in any political campaign for or against a candidate for public office. This includes endorsements, donations to campaigns, and public statements for or against candidates made on behalf of the church.13Internal Revenue Service. Restriction of Political Campaign Intervention by Section 501(c)(3) Tax-Exempt Organizations Voter registration drives and voter guides are allowed if they show no bias toward any candidate. Violations can result in revocation of tax-exempt status and excise taxes.
Unrelated Business Income
Tax-exempt status covers income tied to the church’s religious mission. Income from a trade or business that is regularly carried on and not substantially related to that mission is subject to unrelated business income tax. A church renting out its parking lot on weekdays, for example, may owe tax on that revenue. Any church with $1,000 or more in gross unrelated business income must file Form 990-T, even though churches are otherwise exempt from the standard Form 990.14Internal Revenue Service. Unrelated Business Income Tax
Donation Receipts
For any single contribution of $250 or more, a donor can claim a tax deduction only with a written acknowledgment from the church. The acknowledgment must include the church’s name, the amount of any cash contribution or a description of non-cash donations, and a statement about whether the church provided goods or services in return.15Internal Revenue Service. Charitable Contributions: Written Acknowledgments A system for issuing these receipts at year-end is one of the first administrative tasks worth setting up. Donors who don’t get proper acknowledgments lose their deductions.
State and Local Compliance
Federal recognition is only part of the picture. State and local rules can lead to fines, loss of corporate status, or being forced out of a location.
Zoning and RLUIPA
Municipal zoning controls where a church can operate. Residential zones often restrict houses of worship, and commercial zones may impose parking, building-size, and signage requirements. Check with the local planning or zoning department before signing a lease or buying property.
If a local government denies a permit or imposes burdensome conditions, federal law offers protection. The Religious Land Use and Institutionalized Persons Act bars local governments from imposing land use regulations that place a substantial burden on religious exercise unless the regulation serves a compelling interest through the least restrictive means available.16Office of the Law Revision Counsel. 42 USC 2000cc – Protection of Land Use as Religious Exercise It also bars zoning rules that treat religious assemblies on less than equal terms with nonreligious assemblies, so a zone that allows theaters and meeting halls but excludes churches is likely violating the law.17U.S. Department of Justice. Religious Land Use and Institutionalized Persons Act
Business Licenses and Charitable Solicitation Registration
Many cities and counties require a general business license or permit, separate from incorporation and tax-exempt status. Check with your local city hall or county clerk.
Roughly 40 states require organizations that solicit charitable donations to register with a state agency, often the Attorney General’s office. Churches are commonly exempt, but the exemption is not universal, and some states that grant it still require paperwork to claim it. Verify your state’s rules before launching a fundraising campaign.
Property Tax Exemption
Nearly every state offers a property tax exemption for religious organizations, but it is rarely automatic. Most jurisdictions require an application to the local county assessor, and some require annual renewal. The property generally must be used primarily for religious worship, though the definition of qualifying use varies. Administrative offices, parsonages, and fellowship halls may or may not qualify depending on your jurisdiction. Deadlines are often strict, and missing one usually means paying a full year of tax.
Annual Reports
After incorporating, most states require nonprofits to file an annual or biennial report with the Secretary of State to stay in active status. The filings are simple and the fees modest, but forgetting them can lead to administrative dissolution. When a state dissolves a corporation for failure to file, the church loses its liability protection, may lose the right to its name, and has to go through reinstatement with back fees and penalties. Set a calendar reminder for the deadline the day you incorporate.
Insurance
Legal structure gives liability protection on paper; insurance covers claims in practice. A new church should consider general liability insurance for injuries on church property and claims from church activities, property insurance for the building and contents, and directors and officers liability insurance for board members sued over governance decisions. Workers’ compensation requirements vary by state; some exempt religious organizations or small employers, while others require coverage as soon as the first employee is hired. An insurance agent who works with religious organizations can build a policy that fits the church’s size and activities.