Short answer: a church is tax-exempt, but it is not filing-free. Churches don't file the annual Form 990 that other nonprofits do, and they don't have to apply to the IRS to be exempt — but the moment a church has employees or pays contractors, real filing obligations kick in: payroll returns, W-2s, and 1099s, plus a return and tax on any unrelated business income. Missing these is where otherwise healthy churches get into trouble.
Exemption first: what churches don't have to do
Two things set churches apart from other charities:
- No application required. A qualifying church is automatically considered tax-exempt under section 501(c)(3) — it doesn't have to file Form 1023 to be exempt. Many churches still apply for a formal determination letter because donors, banks, and grantmakers like to see one, but it's optional.
- No Form 990. Churches and their integrated auxiliaries are exempt from the annual 990 information return that most nonprofits must file. This is a genuine break — and also why some church boards wrongly assume there's nothing to file at all.
Payroll: the filings most churches actually owe
Once a church pays staff, it's an employer, with an employer's paperwork:
- Form 941, filed quarterly, reporting wages and the income and payroll taxes withheld (small employers approved by the IRS may file Form 944 annually instead).
- W-2s and a W-3 for every employee, due by January 31.
- Depositing withheld taxes on the church's required schedule — missed deposits carry their own penalties.
The clergy payroll nuance that trips churches up. A minister's wages are not subject to Social Security and Medicare (FICA) withholding — clergy pay self-employment tax on their own instead. So a church should not withhold FICA from a pastor's pay (doing so is a common, messy error). The church can withhold federal income tax if the minister requests it in writing — often a smart move, since it spares the pastor from quarterly estimates. Non-minister employees, by contrast, get standard FICA withholding. Getting the two categories right is half of clean church payroll — see our housing allowance guide for the related compensation piece.
1099s for contractors and guest ministers
When a church pays a non-employee — a guest evangelist, a musician, a repair contractor, a bookkeeper who isn't on staff — it generally must issue Form 1099-NEC once total payments to that person reach the reporting threshold: $2,000 for payments made in 2026 (raised from $600, which applied through 2025). This includes love offerings the church collects and pays to a guest speaker. Keeping a W-9 on file for every contractor before you pay them makes January painless.
When a church actually owes tax: UBIT
Tithes, offerings, and donations are never taxed. But if a church regularly runs a business unrelated to its exempt purpose — say, a commercial venture or certain advertising income — the net can be unrelated business taxable income (UBIT), reported on Form 990-T and taxed like a business, once gross unrelated income hits $1,000 in a year. Most small churches never trigger this, but rental arrangements, parking operations, and side ventures are worth a check.
Staying exempt: the compliance guardrails
Filing isn't the only obligation — a church has to keep acting like a 501(c)(3):
- No private inurement. Church assets can't unduly benefit insiders; compensation must be reasonable and documented.
- No political campaign activity. A 501(c)(3) can't endorse or oppose candidates for office (the "Johnson Amendment"), though it can address issues.
- Good records. Contribution records, board minutes for compensation and housing-allowance designations, and clean books are what make everything above defensible.
This is exactly what we do. We keep churches across the South compliant and clean — payroll and 941s, W-2s and 1099s, housing-allowance designations, and the bookkeeping underneath it — see church & clergy accounting.