Tax and Accounting Help for Nonprofits and Religious Organizations

Churches, temples, mosques, gurdwaras, synagogues, mandirs, community associations and other charities are run by volunteers and small staffs, yet they face federal and state filing rules similar to those of much larger organizations. Treasurers and board members are often asked to handle donor receipts, clergy pay and annual returns without a tax background. This page covers the key rules for nonprofits and religious organizations in Naperville, Aurora and across Chicagoland, and for those that work with us in other states.

Getting and keeping exempt status

A new charity applies for recognition as a 501(c)(3) organization on Form 1023, which must be filed electronically on Pay.gov. Smaller organizations may be eligible for Form 1023-EZ; Publication 557 describes assets of $250,000 or less and annual gross receipts of $50,000 or less. If you apply within 27 months from the end of the month you were organized, recognition generally goes back to your formation date. A church is not required to apply, but many do so because a letter reassures members, donors and banks.

In Illinois, charitable organizations that solicit donations or hold charitable assets generally must register with the Attorney General, using Form CO-1 through the Charitable Trust Online system, and file an annual AG 990-IL report with a copy of the federal return and, when required, an audit report. Property tax and sales tax exemptions are separate applications.

Annual returns and penalties

Returns are due by the 15th day of the fifth month after the organization's tax year ends, which is May 15 for a calendar-year organization (moved to the next business day when it falls on a weekend). Churches are excepted from filing Form 990, but they must file Form 990-T if they have $1,000 or more in gross income from a regularly conducted unrelated business, such as certain rental or business income. An organization that fails to file for three consecutive years automatically loses its exempt status, so a small group that stopped filing years ago should act now.

Donor receipts and substantiation

A donor cannot deduct a single gift of $250 or more without a contemporaneous written acknowledgment. It should state the organization's name, the cash amount or a description of non-cash property, and whether any goods or services were given in return, with a good-faith estimate if so. Many organizations send annual summaries by January 31. Smaller gifts are not combined, so weekly offerings under $250 do not need a letter, though donors should keep bank records. If a donor pays more than $75 and receives something of value, the organization must give a written disclosure. Beginning in 2026, a donor who does not itemize can deduct up to $1,000 ($2,000 joint) of cash gifts, so expect more requests for receipts. Donors can read more in our charitable giving guide.

Clergy compensation and housing

A minister is treated as an employee for income tax and as self-employed for Social Security and Medicare, so the church generally withholds no federal income tax or FICA from ministerial salary. The minister pays self-employment tax and often needs estimated payments. A housing allowance or parsonage can be excluded from income tax but not from self-employment tax, and the congregation must designate a definite amount in advance by official action. The exclusion is limited to the smallest of the designated amount, the amount actually used for housing, and the home's fair rental value, and it cannot exceed reasonable pay for the minister's services. A minister with a religious objection to Social Security coverage can apply for an exemption on Form 4361, which must be filed by the return due date for the second year with at least $400 of net earnings from ministry; once approved it is irrevocable. Report housing allowances in box 14 of Form W-2 where applicable.

Lay employees are generally subject to FICA. A church that opposes payment for religious reasons may elect out by filing Form 8274, in which case employees owe self-employment tax on wages of $108.28 or more in a year. Churches are not liable for federal unemployment tax. Reimburse expenses under an accountable plan, issue Form 1099-NEC to guest speakers who are contractors when required, and review whether any staff are really employees. See employee vs. independent contractor.

Other rules to watch

501(c)(3) organizations may not intervene in political campaigns. Special procedures limit IRS examinations of churches. Rental of a facility, parking fees or an operating business can create unrelated business income. Compensation for leaders should be reasonable and approved by an independent board. A charity with foreign bank accounts, such as a mission fund, may need to file an FBAR; see FBAR.

How we can help

We prepare Forms 990 and 990-T, set up payroll and clergy compensation, keep fund-based books, and produce financial statements for boards and grantors. See accounting and financial statements, bookkeeping and payroll services. This page is general information, not advice for your situation. Legal questions belong with your attorney.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.