By Jason Stverak
Government shutdowns have become unsettlingly routine in recent years, throwing thousands of military families and federal employees into financial limbo. Paychecks are delayed, bills pile up, and uncertainty hangs in the air. But amid the turmoil, one group of institutions consistently answers the call as financial first responders: America’s credit unions.
In every shutdown, credit unions – especially those serving our nation’s defenders – have stepped up to keep affected families afloat. Their extraordinary relief efforts in these crises offer a powerful reminder of the credit union mission and why Congress must preserve credit unions’ federal tax-exempt status.
Credit Unions: Financial First Responders In Shutdowns
When federal funding dries up, credit unions spring into action. During the prolonged 2018–2019 shutdown, for example, thousands of military servicemembers and government employees relied on emergency support from their credit unions. From Coast Guard communities to big Army towns, credit unions know the drill when a shutdown hits. They immediately roll out lifelines to tide members over until government reopens.
“As the government shutdown continues, we want to be clear: this has real consequences for our servicemen and women, federal employees, and their families,” my colleague, DCUC’s President/CEO Anthony Hernandez, observed during the most recent impasse. “Credit unions have always stood ready to serve those who serve our nation. In times like a government shutdown, these institutions continue to step up by offering tailored support and assistance to ensure the financial readiness and well-being of our servicemembers, veterans, and federal employees.”
His words reflect a simple truth: credit unions see it as their duty to serve those who serve our nation. When a Coast Guard family or a civilian Defense Department worker faces zero income due to partisan gridlock, their credit union is often the first place they turn. And time and again, credit unions deliver – swiftly, compassionately, and effectively. It’s a role these member-owned cooperatives embrace wholeheartedly, because helping members is the very reason they exist.
Earning Their Tax-Exempt Status
The above-and-beyond actions of credit unions in crisis aren’t just goodwill; they are the clearest expression of the credit union difference. Unlike banks, credit unions are not-for-profit, member-owned financial cooperatives. They don’t answer to stockholders or chase quarterly profits. Every dollar that would be paid out as corporate profit is instead reinvested into better rates, lower fees, and services for members. This is the model Congress recognized over 80 years ago when it granted credit unions a federal tax exemption – a public policy trade-off meant to encourage the growth of member-focused, community-based finance.
Simply put, credit unions’ tax status exists because they earn it every day through their community service and member advocacy. During emergencies like government shutdowns, that commitment is on full display.
Providing 0% loans and waived fees to strapped families isn’t a money-maker; it’s a mission. Credit unions can offer this relief precisely because of their cooperative structure and tax status – they plow earnings back into members instead of siphoning off profits for shareholders. The impact is real: in a nationwide coalition letter this year, over a dozen credit union organizations (representing 4,500+ credit unions and 140 million member-owners) warned Congress that taxing credit unions would hurt working families.
They noted that credit unions invert the typical for-profit model – essentially 100% of earnings are returned to members or community service, versus banks that deliver the vast majority of profits to a small group of investors. The relief programs during shutdowns underscore this difference. When furloughed federal workers received interest-free loans and financial counseling instead of exploitative fees, it was because their financial institution chose mission over margin. That’s exactly what the tax exemption is designed to foster.
Banks’ Lobbying And Tax Loophole Hypocrisy
One would hope that such public-spirited actions by credit unions would be applauded by all. Yet shockingly, the banking industry’s response has been to double down on efforts to undermine credit unions’ tax status. Big bank lobbyists have spent years urging Congress to eliminate the credit union tax exemption, claiming it’s an unfair advantage. As recently as April 2025, the Independent Community Bankers of America was calling on lawmakers to end credit unions’ tax exemption (at least for larger credit unions).
Bank trade groups argue credit unions have outgrown their special status – all while ignoring the enormous tax breaks banks themselves enjoy. The truth is that Wall Street and the banking industry benefit from a host of their own tax advantages, and chief among them is the Subchapter S corporation loophole that many banks exploit.
Under Subchapter S of the tax code, qualifying banks can elect to pass their income directly to shareholders – meaning they pay no corporate income tax at all. This isn’t a rare trick; it’s widespread. Over 2,000 U.S. banks – including some sizable ones – use the Subchapter S election to avoid corporate taxes entirely, saving those banks an estimated $1.8 billion in taxes in 2022 alone. In fact, roughly one in three American banks is structured as an S-corporation.
On top of that, the 2017 Tax Cuts and Jobs Act handed the banking industry a massive windfall by slashing the corporate tax rate from 35% to 21%. Banks collectively enjoyed an annual tax cut of about $28.8 billion starting in 2017 – amounting to an estimated $447 billion in tax breaks over ten years. By contrast, the entire credit union tax exemption “costs” the Treasury only around $4 billion per year, a modest sum that yields outsized community benefits. One analysis found that the recent tax cuts and loopholes for banks have a budgetary impact roughly 16 times greater than the credit union exemption.
This context makes the banks’ anti-credit union campaign not only disingenuous but galling. After receiving huge tax cuts – and even taxpayer-funded bailouts in the past – some in the banking industry are now lobbying to raise taxes on credit unions. Even as credit unions were busy extending lifelines to military families during the last shutdown, bank lobbyists were busy on Capitol Hill, pushing bills to expand their own tax loopholes. One such proposal was introduced in Congress to raise the shareholder cap for Subchapter S banks from 100 to 250. In plain English, this would let much larger banks qualify for tax-free status.
Another trade group-backed idea would go even further – raising the S-corp shareholder limit to 500 for banks and creating new categories of “qualified” stock that allow corporations, partnerships, or foreign investors to buy into S-corp banks without being counted as shareholders. In other words, the bank lobby wants to loosen the rules so that even more banks (and bigger ones) can dodge corporate taxes, all while it insists credit unions should start paying taxes. These brazen attempts to broaden Subchapter S eligibility have not become law as of fall 2025, but they are being actively pushed by banking interests in Washington. The contrast could not be more clear: credit unions are lobbying to help their members, while banks are lobbying to help themselves.
Stand Up For Credit Unions’ Tax Status
The choice facing policymakers is a stark one. Will we penalize the not-for-profit institutions that consistently put community and country first, or will we continue to recognize and reward their special role? Every time our government shuts down, we see exactly what credit unions deliver – compassion, flexibility, and action for people who need it. These financial first responders have earned our trust and gratitude. Now, they deserve Congress’s steadfast support.
I urge every member of Congress: defend the credit union tax exemption. Do not be swayed by false equivalencies from bank lobbyists. Credit unions’ mission and structure are fundamentally different, and taxing them would only hurt the 140 million Americans who rely on their services. Instead of entertaining bank-backed proposals that would undermine credit unions or expand tax avoidance for banks, lawmakers should be working to empower and celebrate those financial institutions that put people over profit. Preserving credit unions’ tax status isn’t a “favor” to the industry – it’s an investment in the financial resilience of military families, federal workers, and communities everywhere.
Finally, to the people who benefit from credit unions: your voice matters too. If your credit union has helped you through a tough time – be it a government shutdown, a natural disaster, or just day-to-day challenges – share your story. Let your representatives know how your credit union had your back when it counted. Stand up and speak out in support of your credit unions. Together, we can ensure that these member-owned financial first responders remain strong, ready, and tax-exempt – so they can continue serving those who serve our nation, come what may.
Jason Stverak is Chief Advocacy Officer at the Defense Credit Union Council.