Drawing a distinction between a church and a religious organization is not always easy; however, the distinction is important since churches are generally exempt from a number of legal requirements that may otherwise be broadly applied to religious organizations.
According to the IRS, there are certain characteristics generally attributed to churches that have been developed by the IRS and court decisions. These include:
- Distinct legal existence
- Recognized creed and form of worship
- Definite and distinct ecclesiastical government
- Formal code of doctrine and discipline
- Distinct religious history
- Membership not associated with any other church or denomination
- Organization of ordained ministers
- Ordained ministers selected after completing prescribed courses of study
- Literature of its own
- Established places of worship
- Regular congregations
- Regular religious services
- Sunday schools for the religious instruction of the young
- Schools for the preparation of its members
The IRS generally uses a combination of these characteristics, together with other facts and circumstances, to determine whether an organization is considered a church for federal tax purposes.
In general, religious organizations do not have a congregation that regularly attends religious services. They tend to be non-denominational ministries or groups that share a common religious belief or mission and exist to study or advance those beliefs.
Churches and religious organizations may receive different treatment from federal and state laws in several areas, including:
Federal tax-exempt status
To be exempt from federal income tax, religious organizations must file for tax-exempt status with the IRS while churches are automatically recognized as exempt and do not have a requirement to file. However, many churches choose to file since an IRS determination letter is necessary to apply for state tax exemptions and can also assure donors that their contributions are tax-deductible.
Annual information return
Religious organizations are required by the IRS to file an annual information return about the organization’s finances and activities each year. Churches are exempt from this requirement.
Churches and religious organizations are prohibited from having a substantial part of their activity devoted to lobbying. To determine what constitutes a “substantial part,” the IRS uses a “facts and circumstances” test that takes a number of factors into consideration, including the amount of time and money devoted to lobbying activities (the “substantial part” test).
Religious organizations may opt out of the substantial part test and instead elect the “expenditure test” as outlined in IRC Section 4911. Churches do not have the option to use the expenditure test.
Both churches and religious organizations are exempt from paying federal unemployment taxes. While churches are generally exempt from paying state unemployment taxes, some religious organizations may be required to pay. These requirements vary by state, depending on where the nonprofit is incorporated.
Social Security and Medicare taxes
Under the Federal Insurance Compensation Act (FICA), churches and religious organizations are generally required to collect, pay, and report employment taxes. If a church opposes the payment of these taxes on religious grounds, it can file for an exemption using Form 8274. However, if a church elects to file for an exemption, its employees will be responsible for paying Social Security and Medicare taxes.
Health insurance (ACA)
While churches and religious organizations are generally subject to the provisions of the Affordable Care Act (ACA), those that object to covering contraceptive services on religious grounds may be exempt from the ACA’s mandate that covers these services.
The Church Law Center of California assists churches with organization, governance, and risk management. We can help your church craft policies so it is in a better position to address problems as they arise. To find out how we can help your church, call us today at (949) 689-0437 or reach out to us through our contact page.