Nonprofit taxes: A complete guide for tax-exempt organizations

When it comes to nonprofit taxes, the first step for many organizations is applying for tax-exempt status by filing Form 1023 or Form 1024 with the IRS. Once approved, most nonprofits are required to file an annual return, typically a version of Form 990, to maintain their status.

• Most nonprofits are exempt from federal income tax, but they must apply for tax-exempt status and file annual returns with the IRS to keep it.
• Different types of tax-exempt organizations—501(c)(3), 501(c)(4), 501(c)(6), and others—have distinct rules, filing requirements, and benefits.
• Filing the correct Form 990 depends on your organization’s gross receipts and total assets.
• Nonprofits may still need to pay taxes on unrelated business income (UBIT) and follow specific state tax regulations.
• You can easily complete, sign, and securely share all necessary IRS tax forms using pdfFiller.

Introduction to non-profit taxes

Running a nonprofit comes with a unique set of tax responsibilities. Unlike for-profit businesses, nonprofit organizations can qualify for federal tax exemption, meaning they generally do not pay federal income tax on income related to their mission. But the exemption is not automatic. Organizations must apply for it, report their finances annually, and follow strict rules to keep their favored status.

If you are figuring out nonprofit taxes for the first time, the key point is simple: state nonprofit status and federal tax-exempt status are not the same thing. State law governs whether you are formed as a nonprofit corporation or other entity, while federal law governs whether the IRS recognizes you as exempt from federal income tax.

This guide is for nonprofit founders, managers, and board members who need to understand their tax obligations. We’ll cover how to apply for 501(c)(3) status, which Form 990 to file, key deadlines, and how to stay compliant. Following these rules is essential for maintaining your organization’s tax-exempt status and ensuring its long-term success.

What does it mean to be a tax-exempt organization?

Tax-exempt status is a recognition by the IRS that your organization qualifies under a specific section of the Internal Revenue Code and does not owe federal income tax on income earned in pursuit of its exempt purpose. This status is separate from being a nonprofit under state law. An organization can be legally incorporated as a nonprofit corporation at the state level, but still owes federal taxes if it has not applied for and received a federal tax exemption.

Tax-exempt organizations are not entirely free from all taxes. They may still be subject to state, local, sales, property, and payroll taxes, such as Social Security, depending on the state and the nature of their activities. Federal tax exemption specifically refers to the federal income tax exemption granted by the IRS.

What tax obligations do nonprofit and tax-exempt organizations actually have?

Many people ask, “Do nonprofits pay taxes?” Yes, sometimes. Even if an organization is exempt from federal income tax, it may still need to file annual information returns, pay payroll taxes, and follow state and local tax rules. It may also owe taxes on unrelated business activities.

When you form a nonprofit, the IRS does not automatically grant you a tax exemption. You must apply for federal tax-exempt status. Once the IRS recognizes your organization, you are generally exempt from federal income tax on funds related to your exempt purposes. However, your tax obligations do not end there.

A typical nonprofit tax compliance checklist includes:

• applying for the right federal tax-exempt status,
• filing the correct annual Form 990 family return,
• withholding and paying employment taxes if the organization has staff,
• tracking unrelated business income,
• meeting state registration and annual report rules,
• keeping documents, board policies, and accounting records up to date.

What are the types of tax-exempt organizations?

The Internal Revenue Code outlines many types of tax-exempt entities. The specific section under which you qualify determines your rules for charitable contributions and tax deductions.

501(c)(3) charitable organizations

A 501(c)(3) organization must be formed and run exclusively for exempt purposes, such as charitable, religious, educational, scientific, or literary activities. Its earnings cannot benefit any private individuals. Most charities choose this status because donations to them are tax-deductible. However, their lobbying activities are limited, and they are prohibited from participating in political campaigns.

501(c)(4) social welfare organizations

A 501(c)(4) organization works to promote social welfare. Unlike 501(c)(3) organizations, it can lobby as its main purpose and participate in some political activities, as long as politics isn’t its primary activity.

501(c)(5) labor, agricultural, and horticultural organizations

The 501(c)(5) organizations work to improve conditions for people in labor, agriculture, or horticulture. Their earnings cannot benefit individual members. This status is common for trade unions, worker groups, and agricultural advocacy organizations.

501(c)(6) business leagues and trade associations

A 501(c)(6) organization promotes a common business interest rather than providing specific services to individual members. This category typically includes chambers of commerce, trade associations, and some professional associations.

501(c)(7) social clubs

A 501(c)(7) social club is an organization created for pleasure, recreation, or similar social activities. While these clubs are tax-exempt, they must pay taxes on income from unrelated business activities. Their tax-exempt status may be at risk if a significant portion of their income comes from nonmembers.

Private foundations

Private foundations are 501(c)(3) organizations that get their funding from a few donors, like a family or a corporation. They usually give grants to other organizations instead of operating their own public programs. Private foundations must file Form 990-PF instead of Form 990 or 990-EZ.

Form 1023: How to you apply for 501(c)(3) tax exempt status

If you are asking how to apply for 501c3 tax exempt status, the IRS process starts before Form 1023 itself. Here are the basic steps:.

1. Form your organization under state law.
2. Get an Employer Identification Number (EIN) from the IRS.
3. Confirm your organization’s purpose and activities qualify for 501(c)(3) status.
4. Determine if you should use Form 1023 or Form 1023-EZ.
5. File your application electronically through Pay.gov.
6. Continue to file annual returns if they are due while your application is pending

Form 1023, also known as the Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, is used by charitable organizations, private foundations, and educational institutions to apply for tax-exempt status.

The 501 (c) (3) application requires detailed information about your organization’s structure, governance, and financial history. You must provide your articles of incorporation, bylaws, and a detailed narrative of your activities.

Use pdfFiller’s intuitive editing tools and built-in document navigation to fill out the IRS Form 1023 when applying for 501(c)(3) tax-exempt status.

Form 1023-EZ

Small organizations with limited gross receipts and assets may qualify to file Form 1023-EZ, which is a shorter, streamlined version. According to the Form 1023-EZ instructions, you must first complete the IRS Eligibility Worksheet to ensure your organization qualifies. You are ineligible if your annual gross receipts exceed $50,000 or if your total assets are worth more than $250,000.

Timing is also a critical factor:

• If you file Form 1023 within 27 months of your organization’s legal formation and the IRS approves the application, your exempt status will be recognized retroactively to your formation date.
• If you file after this 27-month window, your exempt status will typically only be recognized from the filing date onward, unless an exception applies.

For document preparation, pdfFiller is especially useful. It allows you to complete application packets, edit attachments, standardize board resolutions, and convert supporting files to PDF. You can also keep your entire working file in one organized workspace before sending anything through Pay.gov. By using pdfFiller’s online library of fillable forms and PDF editing tools, you can reduce version confusion during this stage.

When should you use Form 1024 or Form 1024-A?

Not all nonprofit organizations are charities. If your organization falls under a different section of the tax code, like 501(c)(4) or 501(c)(6), you’ll use Form 1024, Application for Recognition of Exemption Under Section 501(a).

This means Form 1024 is often the correct application for other tax-exempt entities, including:

• 501(c)(5) labor, agricultural, or horticultural organizations
• 501(c)(6) business leagues
• 501(c)(7) social clubs
• 501(c)(8) and 501(c)(10) fraternal organizations
• Certain religious or apostolic groups described elsewhere in the tax code

To apply for tax-exempt status, you’ll need to submit Form 1024. The IRS uses this form to confirm your organization’s activities match its tax-exempt purpose.

Your application must include:

• A breakdown of your finances
• Your governing documents
• A description of your activities
• Your Employer Identification Number (EIN)

For 501(c)(4) organizations, the process is different. These groups must file Form 1024-A to apply for recognition of exemption. They also need to file a Form 8976 notice within 60 days of their formation.

Filing Form 8976 is just a notice requirement; it’s not the same as receiving an official determination letter from the IRS. Social welfare organizations might need to submit this initial notice and then later apply for an IRS determination letter to get formal recognition.

What is Form 990 for nonprofits?

Once the IRS grants your federal tax exemption, you must file an annual tax return. What is Form 990 for nonprofits? It is the primary tool the IRS uses to gather information about tax-exempt organizations, educate organizations about tax law requirements, and promote compliance.

There are four main variations in the Form 990 family:

• Form 990: The standard Return of Organization Exempt From Income Tax. It requires detailed financial data and governance information.
• Form 990-EZ: A shorter version of the Form 990 for organizations with lower gross receipts and total assets.
• Form 990-N (e-Postcard): An electronic notice for small organizations with minimal gross receipts.
• Form 990-PF: The specific return filed by all private foundations, regardless of their financial size.

Use pdfFiller to quickly and effortlessly complete the IRS Form 990 to report financial activities and maintain compliance with IRS tax-exempt regulations.

If you want to learn more, read our article about Form 990 and its specifics.

Which 990 Form should you file based on your revenue?

The IRS dictates which form you must file based on your financial activity for the tax year. Use this table to quickly identify the correct form:

Generally speaking, keeping accurate accounting records throughout the year makes it much easier to determine your gross receipts and select the right form.

What are the filing requirements and deadlines?

Nonprofit taxes have strict deadlines. Most tax-exempt organizations must file an annual return or electronic notice. The due date for the Form 990 series is the 15th day of the 5th month after the end of your organization’s tax year. For organizations that use a calendar year, the deadline is May 15. This means 2025 returns are due by May 15, 2026.

Filing extension

If you need more time to file, you can request an automatic six-month extension by submitting Form 8868 before the original due date. This extension applies to Form 990, 990-EZ, and 990-PF, but not Form 990-N. Keep in mind that this only extends your filing deadline; it does not extend the time to pay any taxes you owe. To learn more, check out our comprehensive guide on tax extensions.

If you miss the filing deadline, the IRS can issue daily penalties. If you fail to file for three consecutive years, your organization will automatically lose its tax-exempt status and may have to pay corporate income tax.

How do you go about maintaining tax-exempt status?

Earning your federal tax-exempt status is only the beginning; you must actively maintain it. The IRS can automatically revoke federal tax-exempt status if a required Form 990, 990-EZ, 990-PF, or Form 990-N is not filed for three consecutive years.

Filing your annual Form 990 on time is critical, but it’s not the only requirement. You must also ensure your organization’s activities continue to align with the exempt purposes stated in your initial application.

For 501(c)(3) organizations, this means you can’t participate in political campaigns or heavily influence legislation. A significant portion of your resources must also go toward your charitable mission, not to benefit private individuals or board members. Rules around lobbying are more flexible for 501(c)(4) and 501(c)(6) organizations, but notice and proxy tax rules may still apply.

To stay compliant, your nonprofit should:

• An annual board review of your mission and activities
• Accurate bookkeeping and expense classification
• Written conflict-of-interest and records-retention policies
• Timely annual filings
• A review of new revenue streams for UBIT exposure
• Annual checks using the IRS Tax-Exempt Organization Search tool

What is Unrelated Business Income Tax (UBIT)?

Do nonprofits pay taxes? Yes, under certain conditions. Non-profit taxes often involve Unrelated Business Income Tax (UBIT). If your tax-exempt organization generates income from a trade or business that is regularly carried on and not substantially related to your charitable purpose, that income is taxable.

For example, if a university runs a public parking garage, the income from that garage might be subject to UBIT. However, activities run mostly by volunteers, or the sale of donated merchandise, are usually exempt from this tax.

If an exempt organization has $1,000 or more of gross income from an unrelated business, it must file Form 990-T. If it expects its tax for the year to be $500 or more, it must pay estimated tax.

Common nonprofit examples can include:

• Advertising sold in publications,
• Merchandise operations unrelated to mission,
• Parking or facility income in some circumstances,
• Revenue from nonmember activity for certain social clubs.

What are the state nonprofit requirements?

A federal tax exemption doesn’t automatically grant you a state tax exemption. Each state has its own application process for exemptions from state income, sales, and property taxes. Federal law governs your tax-exempt status, but state law governs your nonprofit status.

In practice, many states require some combination of:

• entity formation filings,
• charitable solicitation registration,
• annual reports,
• copies of IRS Form 990 or related schedules,
• separate state tax exemption applications for sales tax, property tax, or franchise tax relief,
• employer registrations for payroll and unemployment rules. This is an inference based on IRS state links guidance and public charity registration rules in multiple states.

The IRS’s State Links for Exempt Organizations page is the best place to start. It directs organizations to state-specific resources for registration, taxation, and employer information.

You must also comply with state-level reporting. Many states require nonprofits to register with the Attorney General or Secretary of State before soliciting charitable contributions from residents. You will likely need to file annual state reports and renew your charitable solicitation registrations.

Because local taxes and state tax rules vary widely, you should consult with a professional accountant or check your state government website to ensure you meet all local compliance standards.

How can pdfFiller help with preparing IRS tax reports?

Preparing nonprofit tax forms is mostly a document workflow problem. You need the right IRS form, clean numbers, supporting records, consistent attachments, and a way to review everything before filing. pdfFiller is useful at that stage because it provides an online library of fillable forms, PDF editing, form field creation, cloud-based document storage, and internal sharing tools in one workflow.

For nonprofit teams, the strongest use cases are practical:

• Fill out draft Form 1023, Form 1024, or Form 990 packets,
• Standardize recurring disclosures and attachment pages,
• Convert bylaws, board resolutions, and schedules into shareable PDFs,
• Organize annual tax files with folders and tags,
• Collaborate with finance staff, leadership, and outside accountants,
• Maintain a secure archive of prior-year forms and supporting records.

pdfFiller provides an environment with enterprise-grade security and reliability. The platform is SOC 2 Type II certified and supports workflows that comply with eSignature laws like the ESIGN Act, UETA, and eIDAS for handling documents in the EU.

Final thoughts

Managing nonprofit taxes and maintaining your tax-exempt status doesn’t have to be stressful. By understanding the differences between Form 1023, Form 1024, and the Form 990 series, you can keep your organization compliant and focused on its mission. Staying organized is the secret to stress-free tax filing.

pdfFiller gives teams and individuals a secure, scalable way to manage forms and eSignatures without relying on paper or complicated software. Skip the hassle, save hours, and complete any IRS form yourself with confidence.

Ready to take the stress out of nonprofit tax forms? Start your free trial of pdfFiller today and see how much easier it is to prepare, manage, and organize your IRS filings in one place.

Glossary

• Gross receipts: The total amount of money your organization receives from all sources during its annual accounting period, without subtracting any costs or expenses.
• Employer Identification Number (EIN): A unique nine-digit number assigned by the IRS to identify a business entity or nonprofit organization for tax purposes.
• Unrelated Business Income Tax (UBIT): A federal tax levied on income generated by a tax-exempt organization from activities not directly related to its core charitable mission.
• Private foundations: A type of 501(c)(3) organization that typically receives its funding from a single source, such as an individual or family, rather than the general public.