Federal Reserve building
Source: Getty

Does the Federal Reserve Pay Taxes? No, and Here's Why

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Sep. 1 2021, Published 1:24 p.m. ET

The Federal Reserve is a government entity that was formed over a century ago to handle U.S. fiscal policies and also regulate its banking institutions. The Federal Reserve, or the “Fed” as it’s commonly called, is at the center of many of the nation’s financial issues and aims to prevent potential catastrophes like stock market crashes.

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The Federal Reserve takes in plenty of income. In 2020, it took in $3.4 trillion in revenue. Since this massive organization takes in so much revenue, many people wonder whether it has to pay taxes back to the government.

The Federal Reserve, according to the Federal Reserve Act, is exempt from taxation at the federal, state, and local levels. The one exception to this exemption is for taxation on real estate.

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federal reserve audit
Source: istock

Who audits the Federal Reserve, and how often?

The Federal Reserve is subject to annual audits of its revenues and expenditures. Each of the 12 regional Federal Reserve Banks undergoes yearly audits in which their financial records are thoroughly examined.

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On March 22, 2021, the Fed published its annual audited financial statements for the Federal Reserve Banks including the regional Federal Reserve Banks. The Board of the Federal Reserve hires an independent accounting firm to analyze the organization’s finances.

For 2020, the Federal Reserve Banks’ earnings were approximately $88.6 billion, which was $33.1 billion higher than 2019. Remittances to the U.S. Treasury totaled $86.9 billion.

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The Fed makes most of its income from interest on government securities and Treasuries it purchases. Profits, after expenses are paid, are returned to the U.S. Treasury.

When was the Fed established?

The Federal Reserve Act of 1913 established the Federal Reserve System. Each of the 12 regional member banks focuses on a geographical zone. The 12 city bases for a Federal Reserve bank are Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco, and St. Louis.

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Fed Chair Jerome Powell
Source: Getty

Who runs the Federal Reserve?

The current chairman of the Federal Reserve is Jerome Powell. He's charged with managing the entire Federal Reserve system and helping to drive major financial policy decisions. As such, examination of both inflation and interest rates is essential.

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The official mandate of the Federal Reserve is to “conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates.”

Several progressive Congressional leaders are pushing President Biden to replace Powell. His term is set to expire next year. Lawmakers including Alexandria Ocasio-Cortez, Ayanna Pressley, Rashida Tlaib, Mondaire Jones, and Jesus Garcia think that the Fed needs a leader who will “take bold and decisive action to eliminate climate risk.”

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These legislators also say that Powell has weakened regulations that were made after the 2008 recession, which makes it easier for big banks to pump up their stock and increase their power over the economy.

Reportedly, Janet Yellen, the previous Fed Chair and current U.S. Secretary of the Treasury, told senior White House advisers that she recommends reappointing Powell as the Chairman.

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