The U.S. Supreme Court is set to hear arguments in a case that could have significant implications for religiously affiliated organizations and the administration of unemployment insurance. At the center of the case is whether states can require faith-based nonprofit groups, such as Catholic Charities, to pay unemployment taxes — a decision that could affect the rights of religious institutions and the benefits of over a million workers nationwide.

The case, Catholic Charities Bureau v. Wisconsin Department of Workforce Development, arises from a dispute between the state of Wisconsin and the Catholic Charities Bureau, a nonprofit agency tied to the Diocese of Superior. The organization, along with four of its affiliates, claims it should be exempt from paying unemployment insurance taxes due to its religious mission and affiliation with the Catholic Church.

Currently, most churches and houses of worship are automatically exempt from such taxes. However, this case asks the court to consider whether other religiously affiliated organizations — which may not conduct worship or engage in proselytizing — should also receive similar exemptions.

The Religious Argument

Catholic Charities argues that its work is an extension of the Church’s mission, serving the elderly, disabled, and vulnerable populations through various ministries. The organization says its charitable efforts are grounded in religious values and should therefore qualify for exemption under the First Amendment’s protection of religious freedom.

In legal filings, attorneys for Catholic Charities said that Wisconsin’s refusal to grant an exemption reflects a misunderstanding of what constitutes religious activity. They argue that just because the organization delivers services like elder care or disability support, that does not mean its work is any less religious in nature.

“Wisconsin has denied Catholic Charities a religious exemption that the state freely extends to other religious organizations based on the mistaken view that helping the needy is not a religious act,” the attorneys wrote.

The Becket Fund for Religious Liberty, which advocates for the free expression of religious beliefs, represents the plaintiffs. They assert that the government should not be allowed to decide whether an activity qualifies as religious or not.

The State’s Position

Wisconsin maintains that while Catholic Charities is affiliated with the Church, the work it performs — such as providing residential care and community services — is not inherently religious in function. State officials argue that the agency operates like many other nonprofits and that requiring it to participate in the state’s unemployment insurance program is both fair and lawful.

The state points out that Catholic Charities has been part of Wisconsin’s unemployment system since 1971 without filing any objections. The decision to deny the exemption, Wisconsin officials say, is consistent with longstanding policy and is not discriminatory.

In a filing with the court, the state noted that if exemptions were granted too broadly, they could undermine the integrity of employment protections and result in uneven treatment of workers across industries.

Broader Impact

This case could have wide-reaching implications. According to court filings, over 1 million people in the U.S. are employed by religiously affiliated organizations, including hospitals, universities, and charities. In Wisconsin alone, Catholic-affiliated healthcare systems employ hundreds of thousands of workers.

While 47 states and the federal government allow exemptions from unemployment taxes for religious organizations, the criteria for qualification vary. A decision in favor of Catholic Charities could potentially extend exemptions to a broader range of religiously affiliated employers.

Legal scholars caution that the outcome may also influence how the government evaluates the religious nature of nonprofit organizations. Some experts suggest that accepting self-declared religious identity without examining the actual functions of an organization could make it harder to distinguish between genuinely faith-based operations and those seeking exemptions for other reasons.

“There’s a balance to strike between respecting religious belief and ensuring that exemptions are not misused,” said Luís Calderón Gómez, a tax law professor at the Benjamin N. Cardozo School of Law.

Awaiting a Decision

The Supreme Court’s decision is expected by the end of June. This is the first major religion-related case the court has taken up in nearly two years, and the ruling could clarify how far religious exemptions extend in matters of employment law and taxation.

While the Court has, in recent years, ruled in favor of religious groups in several high-profile cases, legal analysts note that the justices may seek a narrow ruling focused on the specifics of this case.

For Catholic Charities and many other religious organizations across the country, the decision could determine how they are treated under employment law — and whether they can continue their missions without the financial burden of state unemployment taxes.