• Key point. Churches are exempt from unemployment tax in most states.
A federal court in Rhode Island ruled that the exemption of churches from unemployment tax did not violate the first amendment's nonestablishment of religion clause. The Salvation Army dismissed an employee for budgetary reasons. The employee applied for unemployment benefits, and was informed that she was not eligible since her former employer was a religious organization that was exempt from unemployment tax. The employee filed a lawsuit claiming that the exemption of religious organizations from the unemployment law violated the first amendment. A federal court disagreed in an important decision that reaffirms the historic exemption of churches from unemployment taxes.
Congress enacted the Federal Unemployment Tax Act (FUTA) in 1935 in response to the widespread unemployment that accompanied the great ...