Credit Union Taxation

Preferential tax status

Credit unions were established by Congress in the 1930s to provide small-dollar loans to people of modest means. Membership in a credit union was limited to individuals with the same type of job or occupation; from the same community; or another type of "common bond." To encourage lending to people of modest means, Congress exempted credit unions from federal income taxation. Over time, credit unions were allowed to expand their lending to provide car loans, mortgages and even certain types of loans to small businesses. The focus on people of modest means has faded as credit unions were allowed to expand their membership beyond the traditional common bond requirement to virtually anyone who wanted to join.

Over the years, credit unions have expanded and provided more kinds of loans to more people; however, they are still not subject to federal corporate income taxes. Congress needs to re-examine whether it is still appropriate to grant this $1 trillion industry the blanket exemption from federal income taxation.

Facts:

  •  As of March 31, 2013, the 208 largest credit unions, each with more than $1 billion of assets, held almost 52 percent of total credit union assets and were larger than 90 percent of the nation's community banks.
  • An additional 223 credit unions, with total assets between $500 million and $1 billion, held another 15 percent of all credit union assets.
  • A 2006 GAO study found that 14 percent of credit union customers were of low income, 17 percent were of moderate income and 49 percent were of upper income. Credit unions serve a wealthier and more educated customer base than taxable banks.