What Is a 501(c)(3) Organization?

Section 501(c)(3) is a portion of the U.S. 澳洲幸运5官方开奖结果体彩网:Internal Revenue Code (IRC) and a specific tax category for 澳洲幸运5官方开奖结果体彩网:nonprofit organizations. Organizations that meet Section 501(c)(3) requirements are exempt from federal income tax. The 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) recognizes more than 30 types of nonprofit organizations but only those that qualify for 501(c)(3) status can say that donations made to them are 澳洲幸运5官方开奖结果体彩网:tax-deductible.

Most of the organizations that may be eligible for 501(c)(3) status fall into one of three categories: charitable organizations, religious organizations, and private foundations.

How a 501(c)(3) Organization Works

To qualify for 澳洲幸运5官方开奖结果体彩网:tax-exempt status, a group must exist for one of these purposes: charitable, religious, educational, scientific, literary, testing for public safety, preventing cruelty to children or animals, or fostering national or international amateur sports competition.

A 501(c)(3) nonprofit must remain true to its founding purpose to stay tax-exempt under Section 501(c)(3). If the nonprofit decides to pursue a new mission, the organization must notify the IRS of the change. Failing to do so would result in the loss of its tax-exempt status.

In addition, an organization must not serve any private interests. These include the interests of the creator, the creator’s family, shareholders of the organization, and other designated individuals. None of the net earnings of the organization can be used to benefit any private shareholder or individual. All earnings must be used solely for the advancement of the organization's mission.

Some unrelated 澳洲幸运5官方开奖结果体彩网:business income is allowed for a 501(c)(3) organization. However, the amount cannot be substantial. The majority of the nonprofits’s efforts must go toward its mission. Any unrelated business from sales of merchandise or rental properties must be limited, or the organization could lose its 501(c)(3) status.

A 501(c)(3) organization cannot use its activities to influence legislation in a substantial way, including participating in any campaign activities to support or deny any particular political candidate. A 501(c)(3) nonprofit is typically cannot engage in lobbying except in instances when its expenditures are below a certain amount.

Organizations that meet the requirements of Section 501(c)(3) are exempt from federal income tax but they're required to 澳洲幸运5官方开奖结果体彩网:withhold federal income tax from their employees’ paychecks as well as withhold and pay Social Security and Medicare taxes.

People employed by the organization must be paid “reasonable compensation,” which is based on the 澳洲幸运5官方开奖结果体彩网:fair market value that the job function requires.

Special Considerations

Organizations that meet the 501(c)(3) tax category requirements can be classified into two categories: public charities and private foundations. The 澳洲幸运5官方开奖结果体彩网:primary distinction between these two categories is in how they get their financial support. 

Public Charities

A public charity is a nonprofit organization that receives a substantial portion of its income or revenue from the general public or the government. At least one-third of its income must be received from donations from the general public, including individuals, corporations, and other nonprofit organizations.

Individuals who donate to an organization that the IRS considers to be a public charity may qualify for certain tax deductions that can help them lower their taxable income. The total amount of donations to a tax-exempt public charity that an individual can claim is generally limited to 60% of their 澳洲幸运5官方开奖结果体彩网:adjusted gross income (AGI) as of 2025.

Private Foundations

A 澳洲幸运5官方开奖结果体彩网:private foundation is typically held by an individual, a family, or 🧸a corporation. It typically receives most of its 🍒income from a small group of donors.

All 501(c)(3) organizations are automatically classified as private foundations unless they can prove that they meet the IRS standards to be considered a public charity. The deductibility of contributions to a private foundation is more limited than donations made to a public charity.

Most nonprofit organizations are required to file Form 1023 or Form 1023-EZ within 27 months from their date of incorporation to apply for tax-exempt status under Section 501(c)(3). The charitable organization must include its 澳洲幸运5官方开奖结果体彩网:articles of incorporation and provide documents that prove that the organization's mission qualifies it for tax-exempt status.

However, not all organizations that qualify for the tax category must submit Form 1023. Public charities that earn less than $5,000 in revenue per year are exempt from filing this form. But they may still choose to file the form even though it's not required so they can ensure that donations made to their organization will be tax deductible for donors.

Strengt♈hs and Challenges of 501(c)(3) Organizations

The 501(c)(3) status offers myriad benefits to t💙he designated organizations and the people they serve. These organizations are exempt from paying federal income and unemployment taxes and patrons who donate to them are allowed to claim a tax deduction for their contributions.

These organizations are eligible to receive government and private grants to help with funding and to further their mission. These organizations also often receive discounts from retailers, free advertising by way of public service announcements, and food and supplies from other nonprofit organizations🅘 designed to help in times of need.

A 501(c)(3) organiza🅰tion must operate within the confines of the 💙law pertaining to 501(c)(3) organizations to maintain its favorable tax treatment.

Because the organization serves the public, it must operate with full transparency. Its finances, including salaries, are available to members of the public.

Example of a 501(c)(3) Organization

The American Red Cross, established in 1881 and congressionally chartered in 1900, is one of the United States’ oldest nonprofit organizations. Its mission statement states that the organization “prevents and alleviates human suffering in the face of emergencies by mobilizing the power of volunteers and the generosity of donors.” Since its inception, its goal has been to serve members of the armed forces and provide aid during disasters.

The Red Cross is located in 192 countries and operates the largest network of volunteers in the world. This 501(c)(3) organization is segmented into three divisions: the National Red Cross and Red Crescent Societies, the International Federation of Red Cross and Red Crescent Societies, and the International Committee of the Red Cross.

The National Red Cros🔯s andꦑ Red Crescent Societies include the American Red Cross. They aim to relieve human suffering globally by empowering subordinate organizations to operate within their nation’s borders to provide disaster relief, education, and other related services.

The International Federation of Red Cross and Red Crescent Societies provides global humanitarian aid during peacetime, such as assisting refugees. The International Committee of the Red Cross provides humanitarian relief for people who are affected by war or other armed conflicts.

Individuals who itemize their tax deductions can contribute to the Red Cross and claim the amount donated as a deduction.

The Bottom Line

501(c)(3) organizations are nonprofit groups with a dedicated mission. Most people are familiar with them as churches and char🐷ities but they also include private foundations. They receive favorable tax treatment, such as av🎐oiding federal income and unemployment taxes.