SCOTUS Unanimously Rules Wisconsin Violated First Amendment Denying Religious Unemployment Tax Exemption

On June 5, 2025, the U.S. Supreme Court unanimously ruled that Wisconsin violated the First Amendment by denying Catholic Charities Bureau and its subsidiaries an exemption from the state's unemployment tax program, which is granted to religious employers. The Court held that Wisconsin's denial was based on impermissible theological distinctions that favored some religious groups over others, thus breaching constitutional principles of government neutrality toward religion. Justice Sonia Sotomayor, writing the opinion, applied strict scrutiny and concluded that Wisconsin’s exemption scheme was both underinclusive and overinclusive, failing to narrowly tailor its laws to serve a compelling government interest. The ruling emphasized that charitable services motivated by religious principles cannot be deemed secular to deny tax exemptions and that religious organizations must have the autonomy to define their religious operations without state interference. This decision aligns with the fact that more than 40 states have similar exemptions modeled on the Federal Unemployment Tax Act of 1970. The Court's decision reverses the Wisconsin Supreme Court's prior judgment and remands the case for further proceedings consistent with this ruling.