Cooperative Taxes

Most businesses need to register with the IRS, register with state and local revenue agencies, and obtain a tax ID number or permit. A cooperative operates as a corporation and receives a “pass-through” designation from the IRS. More specifically, cooperatives do not pay federal income taxes as a business entity.

Instead, the cooperative’s members pay federal taxes when they file their personal income tax. Members pay federal and state income tax on the margins earned by the cooperative, though the amount of taxation varies slightly by state. Cooperatives must follow the rules and regulations of the IRS’s Subchapter T Cooperatives tax code to receive this type of tax treatment.

To file taxes on income received from cooperatives, please refer to IRS instructions Download Adobe Reader to read this link content on how to file Form 1099-PATR Download Adobe Reader to read this link content. More information about taxable distributions received from cooperatives is available at IRS.gov. If you create a consumer cooperative for retail sales of goods or services that are generally for personal, living, or family, you will need to file Form 3491 Consumer Cooperative Exemption Application Download Adobe Reader to read this link content for exemption from Form 1099-PATR.

Some cooperatives, like credit unions and rural utility cooperatives, are exempt from federal and state taxes due to the nature of their operations. Check with your state’s income tax agency for information about state taxes.

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