Credit Union Tax Exemption

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Updated August 2014


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Issue Overview

NAFCU's Credit Union Federal Tax Exemption Study

Opinion Editorials & Articles

Policy Letters

Meet with Congress in-person at NAFCU’s Congressional Caucus

Issue Overview

What you should know now

On February 26, 2014 House Ways and Means Chairman Dave Camp (R-MI) released a much anticipated tax reform discussion draft. The draft does 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. Anticipating this comprehensive reform draft 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 early February.

Camp’s tax draft was released as he completes his final term as chairman of the House Ways and Means Committee and is not expected to gain significant traction this Congress. Still, this draft will receive serious discussion and could inform the committee’s work in the future.

In addition to action in the House, NAFCU is closely monitoring the Senate Finance Committee agenda under recently appointed Chairman Ron Wyden (D-OR). Chairman Wyden has indicated that his first priority is likely taking up a series of tax extenders that expired at the end of 2013 before moving to any larger tax reform efforts.

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  • Rates and Fees: If the exemption is repealed, it would adversely impact savings and borrowing rates as well as increase fees 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

Background on this issue

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.

Opinion Editorials & Articles 


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Five Years After the Financial Crisis: A View From Main Street (The Huffington Post, September 30)

Caucus is over, but the work is not (CU Insight, September 25)

Tax battle: Banks on offensive against credit unions (, September 11) 

Credit unions work for America (The Hill, September 9)

CU Tax Exemption Is About the Economy: Guest Opinion (Credit Union Times, September 9)

Back Down, Bankers – Credit Union Tax Exemption Has Merit, American Banker (August 28, 2013)

Credit unions and politics: oil and water or peanut butter and jelly? NAFCU's Katie Marisic explains... (CUbroadcast, August 20)


Tax Exemption Policy Letters 


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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  

6-24-2013 NAFCU letter to White House regarding CU Tax Exemption

6-21-2013 NAFCU letter regarding CU Tax Exemption

5-23-2013 NAFCU letter to W&M committee on importance of tax exemption

5-23-2013 NAFCU letter to Finance committee on importance of tax exemption  

5-06-2013 NAFCU letter in response to JCT Tax Reform Report

4-12-2013 NAFCU letter to Ways and Means Committee on Credit Union Tax Exemption

02-01-2013 NAFCU Response to ABA 

7-25-12 Boustany-Lewis Comment Letter

5-15-12 Boustany-Lewis Tax Exempt Organizations

3-7-11 Conrad-Sessions Fiscal Commission Hearing Comment Letter  

9-01-10 Baucus-Grassley Credit Union Tax Exemption Comment Letter

9-01-10 Levin-Camp Credit Union Tax Exemption Comment Letter