Membership dues are regular fees paid by individuals or businesses to belong to an organization, such as a professional body, trade association, chamber of commerce, union or club. Dues are usually charged annually, though some organizations bill monthly or quarterly. In return, members receive benefits such as publications, training, networking events, discounts, voting rights or access to facilities.
Dues appear on both sides of the transaction. For the member, they are an expense, often recorded in an account such as Dues and Subscriptions. For the organization receiving them, they are typically its main source of revenue. Many organizations that collect dues are nonprofits, so their accounting may follow the GAAP rules for not-for-profit entities, which can treat part of a dues payment as a contribution rather than a fee for benefits.
Membership dues in plain terms
Paying an annual fee to join a gym, a professional society or a hobby club works much like paying for a year of a magazine subscription. You pay up front, and you receive the benefits over the following months.
Accounting follows that timeline on both sides. The member spreads the cost over the months covered, and the club counts the money as income gradually, as it provides a year of membership, rather than all on the day the money arrives.
Accounting by the member
Under the accrual basis, dues paid in advance for a future period are recorded as prepaid expenses and charged to expense over the membership period. A firm that pays $1,200 on July 1 for a year of membership in an industry association debits Prepaid Dues $1,200 and credits Cash. At December 31, an adjusting entry moves six months, or $600, to Dues Expense, leaving $600 prepaid for the next year. Many small businesses simply expense dues when paid if the amounts are not material.
Accounting by the organization
For the organization, dues received in advance create a liability. Using the same example, the association debits Cash $1,200 and credits Deferred Dues Revenue, a contract liability, then recognizes $100 of revenue each month as it provides membership benefits. This follows the revenue recognition principle that revenue is recorded when earned.
Nonprofits must judge whether dues are an exchange, a contribution or a mix. If members receive benefits roughly equal in value to the dues, the dues are exchange revenue recognized over the membership period. If members receive little in return, as with many dues paid to support a cause, the payment may be largely a contribution, which is generally recognized when received or unconditionally promised. When there is a mix, the dues are split between the two. Costs of attracting new members can be reported as a separate function in functional expense classification.
US tax treatment
For a business member, dues paid to professional and trade associations are generally deductible as ordinary and necessary business expenses. There are important exceptions under federal tax law:
- Club dues. Dues to clubs organized for business, pleasure, recreation or other social purposes, such as country clubs, athletic clubs and airline lounges, are generally not deductible, even if the club is used for business.
- Lobbying. The portion of dues that a trade association uses for lobbying or political activity is not deductible. Associations commonly tell members what percentage of their dues falls into this category.
- Personal memberships. Dues that serve a personal rather than business purpose are not business expenses.
For the organization, dues are generally exempt from federal income tax if it qualifies as tax-exempt, such as a 501(c)(6) trade association or a 501(c)(3) charity, provided the dues relate to its exempt purpose. Charities must tell members when part of a payment is not deductible as a charitable contribution because members receive goods or services in return. Tax-exempt organizations report dues revenue on their annual Form 990 information return.
Controls and practical points
Organizations that depend on dues track renewal dates, lapsed members and collection rates closely, since a fall in renewals directly reduces revenue. Membership databases are reconciled to the general ledger so that deferred dues revenue equals the unexpired portion of dues collected. For members, a list of subscriptions reviewed each year helps avoid paying for memberships that no longer provide value, a common source of small, recurring expenses.