The value of credit unions
McClatchy Employees, as well as all other credit unions, is a non-profit financial cooperative. Credit unions by their
very structure are fundamentally different from banks in many ways that provide a significant benefit to consumers.
Because of these differences, Congress has exempted credit unions from paying federal income taxes.
Currently the banking industry is challenging the credit union tax exemption. We have created this page to help you
understand the value of credit unions and the importance of the tax exemption.
Why are credit unions tax exempt?
Congress decided in 1937 to exempt credit unions from federal income tax because of their unique structure and role
in the financial services industry. This tax exemption was reaffirmed by Congress in 1951 and again in 1998. In November
2005, the Ways and Means committee of the House of Representatives again reaffirmed the position that credit unions shoul
not be taxed. Credit unions provide a valuable alternative to the for-profit banking system, and continue to serve
consumers who have no other access to financial services.
How do consumers benefit?
America's credit unions provide benefits to their members through higher dividend rates, lower interest rates on loans, and
reduced fees. Credit unions also benefit all consumers by creating an environment that forces banks to compete.
How are credit unions different from banks?
While some consumers may think that banks and credit unions are basically identical, there are some major differences
between the two as the listings below illustrate.
Credit Unions
* Owned by their members
* Focused on serving consumers
* Not-for-profit cooperatives
* Volunteer Board and Committees
* Must be eligible to join
* Earnings are returned to members
* Pay payroll, property, and sales taxes
Banks
* Owned by their stockholders
* Focused on generating profit
* For-profit business
* Compensated Board of Directors
* Anyone can be a customer
* Profits are distributed to stockholders
* Pay federal income taxes, although some are exempt
Could credit unions lose their tax exemption?
The banking industry is asking legislators to tax credit unions. They say that the tax exemption gives credit unions
an unfair advantage and is adversely affecting bank profits. If that were true, why do banks report year after year
of record profits? Clearly, the credit union tax exemption has not affected bank profits and continues to help credit
unions serve consumers well.
Why should Credit Unions remain tax exempt?
The facts that convinced Congress to originally grant credit unions their tax exemption remain true today. However,
if credit unions lose their tax-exempt status, they will have to pass along those taxes in higher fees, higher loan
rates, and lower dividends on savings.
Ultimately, a tax on credit unions is a tax on consumers!
