Credit Union Tax Exemption

On February 26, 2014 House Ways and Means Chairman Dave Camp (R-MI) released a much anticipated tax reform discussion draft. The draft did not impact the credit union tax exemption and also preserves current law exempting federally chartered credit unions from unrelated business income tax due to their status as instrumentalities of the federal government. During the waning days of the 113th Congress, Chairman Camp formally introduced his draft as a piece of legislation (H.R. 1).

Anticipating this comprehensive legislation years in the making, in September 2010, NAFCU released an independent study showing the positive impact that the credit union tax exemption has on consumers, businesses, and the overall economy. The 2014 version of the study was sent to Congress in February of 2014.  

Current House Ways and Means Committee Chairman, Rep. Paul Ryan (R-WI) has indicated that tax reform is among his highest priorities for the 114th Congress. While he will not use former Chairman Camp’s legislation in its entirety, much of the work of the previous Congress could be used to guide the committee's work in the future. 

As the 114th Congress began, Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Senator Ron Wyden (D-OR) announced the creation of five bipartisan Finance Committee Tax Working Groups. The focus of the groups will be: individual income tax; business income tax; savings and investment; international tax, and; community development and infrastructure. The committee leaders said the groups would each produce a report with recommendations.

While none of this poses a direct threat to credit unions, NAFCU remains vigilant in educating lawmakers about the value of the credit union tax exemption and ensuring it is not altered through larger tax reform efforts. 

NAFCU's Position on Credit Union Tax Exemption

Preservation of the credit union tax exemption continues to be NAFCU's top priority.

You can assist in these efforts by downloading NAFCU's study on the benefits of the credit union tax exemption and then contacting your local Members of Congress to share this information with them.

If credit unions are taxed, over time there will be many consequences for credit union members. Possible outcomes include:

  • Credit Unions Would Lose their Identity: By necessity, credit unions would have to increase profits and customer service would likely suffer 
  • Rates and Fees: If the exemption is repealed, it would adversely impact savings and borrowing rates as well as increase fees 
  • Capital: Further restraint on the ability to raise capital potentially impacts safety and soundness
  • Erosion of the Volunteer Base: As credit unions become "more like banks," the self-help, volunteer characteristic of credit unions, and the community as a whole, would become less distinct

Issue Background Information

The 1934 Federal Credit Union Act (FCUA) stated credit unions receive a tax exemption because "credit unions are mutual or cooperative organizations operated entirely by and for their members." Credit unions are eligible for tax-exempt status if they meet the following criteria:

  • Operating on a not for profit basis  
  • Organized without capital stock 
  • Operating for mutual purposes   

In 1998, as part of the findings of the Credit Union Membership Access Act (P.L. 105-219), Congress found that, "Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most State taxes because they are member owned, democratically operated, not for profit organizations, generally managed by a volunteer Board of Directors, and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means."

Still, credit unions do pay many taxes and fees, among them payroll and property taxes. It is also important to note that share dividends paid to credit union members are taxed at the membership level. Critics argue that credit unions today are no different than banks. However, the defining characteristics of a credit union, no matter what the size, remain the same today as they did in 1934: credit unions are not-for-profit cooperatives that serve defined fields of membership, generally have volunteer boards of directors and cannot issue capital stock. Credit unions are restricted in where they can invest their members' deposits and are subject to stringent capital requirements. A credit union's shareholders are its members and each member has one vote, regardless of the amount on deposit, while a bank has stockholders.

Recent Media Outreach

NAFCU has stayed at the forefront of this issue and continued to champion credit unions in major media nationwide.

Many Good Reasons for Credit Unions’ Tax Exemption (Wall Street Journal, May 26, 2015)

End Zone: Like NFL, Would CUs Ever Give Up Tax-Exemption? (Credit Union Journal, May 1, 2015)

NAFCU Sets the Record Straight on Value of Credit Unions (Yahoo! Finance, March 4, 2015)

NAFCU Fires Back at Bankers (Credit Union Times, March 4, 2015)

Trades Hunker Down on Tax Exemption (Credit Union Times, January 8, 2015) 

Credit Union Group Will Push New Congress on Tax Exemption (Bloomberg News, January 6, 2015)

Recent Policy Letters

Read recent letters from NAFCU to members of Congress on the important issue of credit union federal income tax exemption.

5-14-2015 NAFCU Letter Defending the Credit Union Tax Exemption

3-5-2015 NAFCU Letter to the Senate in Response to Recent ABA Attacks

3-5-2015 NAFCU Letter to the House of Representatives in Response to Recent ABA Attacks

12 9 2014 NAFCU Letter to Senator Coburn

10-23-2013 Budget Conferee Letter

7-24-2013 The CU tax exemption helps America

7-15-2013 NAFCU letter protecting CU tax exemption

6-27-2013 NAFCU letter to Senate on CU tax exemption 

View all NAFCU Policy Letters

Updated June 2015