Churches Must Comply with Payroll Tax Reporting Requirements

Federal court rules tax obligations do not violate the First Amendment.

Churches are not exempt from complying with payroll tax reporting requirements. So ruled a federal appeals court in a recent case. In 1986 a church stopped filing federal employment tax returns and paying the federal employment taxes for which it was responsible. Church leaders insisted that the government could not regulate an unincorporated “New Testament church.” When IRS attempts to discuss the matter with church leaders failed, the IRS assessed $5.3 million in unpaid taxes and interest. The IRS asked a federal court to enter a judgment for the full $5.3 million, and to foreclose on a tax lien the IRS had placed on the church’s property. In defense of its failure to pay, the church argued that the first amendment guarantee of religious freedom protected it from liability. The court rejected the church’s position, noting that “neutral laws of general application that burden religious practices do not run afoul” of the first amendment. Since federal employment tax laws are “neutral laws of general application” (that is, they apply to a large class of employers, and do not single out religious employers for less favorable treatment) they do not violate the first amendment. As this case illustrates, any attempt by a church to avoid compliance with federal payroll tax obligations (including the withholding and payment of income taxes and social security taxes) on the basis of the first amendment will be summarily rejected by the civil courts. Indianapolis Baptist Temple v. United States, 2000 2 USTC ΒΆ50,663 (7th Cir. 2000).

This content originally appeared in Church Treasurer Alert, February 2001.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay
caret-downclosefacebook-squarehamburgerinstagram-squarelinkedin-squarepauseplaytwitter-square