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Why Are Credit Unions Tax Exempt?
What Is a Credit Union?
Unlike banks, credit unions are not-for-profit and member-owned. Any money we make is passed back to our members in the form of better rates, higher dividends, and improved products and services.
When you open a primary share with Pelican, you're required to keep a minimum of $5 in it. That $5 represents your share of the credit union and gives you the right to vote on important issues, including the election of member representatives to serve on the board of directors.
What Is the Purpose of a Credit Union?
Credit unions were created to promote thrift and provide credit to members. In fact, many credit unions were started by people of ordinary means who couldn't get approved by their local bank. Credit unions also work together to do good in the communities they serve.
Why Are Credit Unions Tax Exempt?
Credit unions are tax exempt because they are not-for-profit, similar to other nonprofit organizations like churches. We don't exist to profit off of our members. We continue to serve all of our members, including low-income consumers who are often overlooked by traditional financial institutions or targeted by predatory lenders.
Because of our dedication to our members and their individual situations, Pelican has been recognized as a Low-Income Designated Credit Union (LID) and a Community Development Financial Institution (CDFI).
Why Is It Important that Credit Unions Remain Tax Exempt?
A tax on credit unions is not just a tax on a not-for-profit business. It's also a tax on over 100 million credit union members across America. The tax exempt status for credit unions is not a benefit to the company, it's a benefit that credit union members get to enjoy, to the tune of almost $10 billion each year.
Credit unions and small, local community banks are competing against large national for-profit banks and other financial service chains in a very competitive market. Eliminating the tax-exempt status would force many credit unions and community banks out of the market and prevent others from offering competitive rates or serving those who are unbanked.
If credit unions were taxed, there would be no incentive for them to remain not-for-profit. Smaller credit unions would be unable to stay afloat and serve their members and would likely disband, causing people across the country to lose the only sector of the financial industry not driven by profit.
Does Pelican Pay Any Taxes?
While we are tax exempt, we do pay taxes. Pelican pays property taxes, tangible personal property taxes, payroll taxes, and more. As a state-chartered credit union, we also pay unrelated business income tax. And members like you pay taxes on the interest your accounts earn.
Have questions about credit union tax-exempt status? We're happy to help.
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