Credit Union Tax Exemption

Recent Activity

NAFCU Meets with Treasury
From left: Washington Gas Light FCU's Lynette Smith, State Department FCU's Jan N. Roche (NAFCU Board member), Treasury Secretary Steven Mnuchin, Caltech Employees FCU's Richard L. Harris (NAFCU Board chair) and NAFCU's Dan Berger. (NAFCU photo)

Congress passed the Tax Cuts and Jobs Act (TCJA) on December 20, 2017, and President Trump officially signed it into law on December 22. Thanks to NAFCU's persistent advocacy, this monumental piece of legislation keeps the credit union tax exemption fully intact. This is a testament to the value and strength of credit unions. You can download NAFCU's full analysis of the TCJA to learn more about how this legislation affects credit unions.

Since the passage of the TCJA, there have been several high profile attacks on the credit union tax exemption. Former Senator Orrin Hatch (R-Utah) sent letters to the National Credit Union Administration (NCUA) questioning the need for a tax exemption and to the Internal Revenue Service (IRS) arguing that credit unions should file additional tax forms. Several trade associations representing bankers have also joined in the offensive. NAFCU has actively countered these attacks through conversations with the NCUA, the IRS and Senator Hatch’s personal office, as well as advocacy letters.

  • On January 31, 2018, NAFCU sent a letter to Senator Hatch defending credit unions’ federal tax exemption and the benefits it provides to the economy.
  • NAFCU and the Credit Union National Association (CUNA) sent a joint letter to Senator Hatch on February 21, 2018 defending credit unions and their mission.
  • In April 2018, NAFCU reiterated the importance of the credit union tax exemption to the Senate Finance Committee.
  • In April 2018, NAFCU wrote to the IRS explaining that credit unions should not have to file Form 990 as the NCUA provides strong and adequate oversight, including over the areas covered by Form 990.

Of note, Senator Hatch retired at the end of 2018, and no other member of Congress joined in his public attacks on the credit union tax exemption. Furthermore, in the “Tax Reform 2.0” framework released by the House Ways and Means Committee in July 2018, there was no threat to the credit union tax exemption, and there has been no threat to the exemption this Congress thus far. Credit unions have many champions in Congress, and it is unlikely that they will consider changing the tax exemption at this point. Nonetheless, NAFCU remains vigilant and focused on fighting any threats to the credit union tax exemption.

Excise Tax

As for the 21 percent excise tax on excess executive compensation, which was implemented under the TCJA, NAFCU continues to advocate for a legislative fix to ensure parity between for-profit and not-for-profit corporations. NAFCU has urged Congress to provide a technical fix to "grandfather" those employment contracts entered into on or before November 2, 2017, for tax-exempt employers. The TCJA contained a provision allowing for-profits to grandfather in binding contracts in effect before that date, but did not include the same clause for not-for-profit tax-exempt organizations.

At the end of 2018, the Treasury Department and the IRS issued Interim Guidance Under Section 4960 to explain how the excise tax should be reported and paid in the absence of implementing regulations. The Treasury Department and the IRS note that credit unions should use Form 4720, Return of Certain Excise Taxes Under Chapter 41 and 42 of the Internal Revenue Code. The learn more about the Interim Guidance, please read NAFCU’s Compliance Blog post and Final Regulation.