Churches are tax-exempt under federal law if they meet specific requirements

A church does not automatically become tax-exempt just by being a church. The Internal Revenue Service (IRS) grants tax-exempt status to churches that meet the criteria in Section 501(c)(3) of the tax code. This means the church is organized and operated exclusively for religious, educational, charitable, or scientific purposes, and no part of its income goes to private individuals or shareholders.

Most churches that meet these requirements do not have to file a separate form to claim tax-exempt status — the IRS recognizes them as tax-exempt straightforward because they are churches. However, a church can choose to file Form 1023 or Form 1023-EZ to get written confirmation from the IRS, which can help with state tax exemptions and donor confidence. A church that does not file either form is still tax-exempt under federal law if it meets the requirements.

Tax-exempt status means the church does not pay federal income tax on donations, grants, or other income used for its religious mission. It also means donors can deduct their contributions on their personal tax returns (if they itemize deductions). Property tax exemptions and sales tax exemptions vary by state and are decided by state and local governments, not the IRS.

Key Takeaways

  • Churches are tax-exempt under federal law if they are organized and operated exclusively for religious purposes and do not distribute income to private individuals.
  • A church does not have to file Form 1023 or Form 1023-EZ to be tax-exempt federally, but filing provides written confirmation that can help with state taxes and donor records.
  • Tax-exempt status means the church does not pay federal income tax, but property tax and sales tax exemptions are decided by state and local governments.
  • A church that loses tax-exempt status must pay back taxes and may face penalties if the IRS determines it violated the rules.

What the IRS requires for a church to be tax-exempt

The IRS looks at whether a church meets five basic tests. First, it must have a recognized creed and form of worship. Second, it must have a definite and distinct ecclesiastical government. Third, it must have a formal code of doctrine and discipline. Fourth, it must have a distinct religious history and literature. Fifth, it must have a membership not associated with any other church or denomination.

These tests are broad and designed to recognize a wide range of religious organizations — from traditional denominations to independent congregations. The IRS does not judge the truth or validity of religious beliefs; it only checks whether the organization functions as a church.

Beyond these five tests, a church must also meet the general 501(c)(3) rules: it must be organized for religious purposes, it must operate exclusively for those purposes, and it must not distribute any net income to members, directors, or officers. If a church operates a business unrelated to its mission — such as a bookstore or rental property — the income from that business may be subject to tax.

When a church must file Form 1023 or Form 1023-EZ

A church is not required to file either form to be tax-exempt under federal law. However, filing provides a written information letter from the IRS that confirms the church's tax-exempt status. This letter is useful when explore for state tax exemptions, opening a bank account, or asking donors for contributions.

Form 1023-EZ is the shorter form and costs $275. A church can use it if it has been in existence for at least four years, expects annual gross receipts under $50,000, and meets other basic criteria. Form 1023 is the full form and costs $600. It is more detailed and is used by churches that do not meet the Form 1023-EZ requirements or want to provide more information to the IRS.

A church that files either form should expect the IRS to take several weeks to several months to review it. During that time, the church is still tax-exempt under law, but it does not have written confirmation yet. Once the IRS approves the form, it sends a information letter that the church can use to show donors and state agencies.

How state and local tax exemptions work for churches

Federal tax-exempt status does not automatically grant state income tax exemption, property tax exemption, or sales tax exemption. Each state and locality decides its own rules. Most states exempt churches from state income tax if they are federally tax-exempt, but some states have additional requirements or different definitions of what counts as a church.

Property tax exemption is the most common benefit churches seek at the state level. A church building and land used for worship are often exempt from property tax, but the rules vary widely. Some states require the church to own the property outright; others allow exemption for leased property. Some states require the church to file a separate form with the county assessor; others grant exemption automatically if the church is federally tax-exempt.

Sales tax exemption also varies. Some states exempt churches from sales tax on purchases used for religious purposes; others do not. A church should contact its state's department of revenue and its county assessor to learn what exemptions are available and what forms or documentation are needed.

What happens if a church loses tax-exempt status

The IRS can revoke a church's tax-exempt status if the church no longer meets the requirements. Common reasons include distributing income to private individuals, operating primarily for a non-religious purpose, or engaging in substantial political activity or lobbying.

If the IRS revokes a church's status, the church must pay federal income tax on income earned after the revocation date. The IRS may also assess back taxes and penalties if it determines the church violated the rules before the revocation. A church that disagrees with the revocation can appeal through the IRS administrative process or file a lawsuit in federal court.

A church can also lose state and local tax exemptions if it no longer meets state requirements or if the state changes its rules. The church would need to contact the state and local tax authorities to understand what happened and whether it can restore the exemption.

The difference between a church and a religious nonprofit organization

A church and a religious nonprofit organization are both tax-exempt under 501(c)(3), but they are treated differently by the IRS. A church is recognized as tax-exempt automatically and does not have to file Form 990 (the annual information return that most nonprofits file). A religious nonprofit organization — such as a religious school, hospital, or charity — must file Form 990-N, Form 990-EZ, or Form 990 depending on its size and structure.

A church also has more flexibility in its governance and record-keeping. The IRS does not audit churches as frequently as it audits other nonprofits, and churches are not required to disclose their donor lists or financial details to the public (though many choose to do so).

The definition of "church" is narrow. An organization that provides religious education or charitable services but does not function as a place of worship and congregational gathering is usually classified as a religious nonprofit organization, not a church. This distinction affects which forms the organization must file and how the IRS oversees it.

How donors benefit from a church's tax-exempt status

When a church is tax-exempt, donors can deduct their contributions on their federal income tax return — but only if they itemize deductions instead of taking the standard deduction. A donor who gives $500 to a tax-exempt church can reduce their taxable income by $500 (assuming they itemize). A donor who gives to a church that is not tax-exempt cannot deduct the contribution.

For a donor to claim a deduction, the church should provide a written statement showing the amount of the contribution and confirming that the church is tax-exempt. The donor does not need the church's information letter; a straightforward receipt or letter from the church stating its tax-exempt status is usually enough. The donor keeps this statement with their tax records.

A donor can also deduct unreimbursed expenses related to volunteering at a tax-exempt church, such as mileage driven to the church or supplies purchased for a church event. These deductions are subject to limits and other rules, so a donor should consult a tax professional or the IRS website for details.

Frequently Asked Questions

Do all churches have to file Form 1023 to be tax-exempt?

No. Churches are tax-exempt under federal law if they meet the IRS requirements, regardless of whether they file Form 1023 or Form 1023-EZ. Filing is optional but recommended because it provides written confirmation that can help with state taxes and donor records.

Can a church lose its tax-exempt status?

Yes. The IRS can revoke a church's tax-exempt status if the church distributes income to private individuals, operates primarily for a non-religious purpose, or engages in substantial political activity. If revoked, the church must pay federal income tax going forward and may owe back taxes and penalties.

Does federal tax-exempt status mean a church is exempt from property tax?

Not automatically. Property tax exemption is decided by state and local governments, not the IRS. Most states exempt church property from property tax, but the rules and requirements vary. A church should contact its county assessor to learn what is needed to claim the exemption.

Can a church that is not federally tax-exempt still deduct donations from donors' taxes?

No. Only donations to federally tax-exempt organizations can be deducted by donors on their tax returns. If a church is not federally tax-exempt, donors cannot deduct their contributions, even if the state or locality recognizes the church for other purposes.

What is the difference between a church and a religious nonprofit organization for tax purposes?

A church is automatically tax-exempt and does not file Form 990. A religious nonprofit organization (such as a religious school or charity) must file Form 990 and is subject to more IRS oversight. The IRS defines a church narrowly as an organization with a congregation that gathers for worship.