Frequently Asked Question
Do nonprofit organizations pay taxes?
Section 501 of the Internal Revenue Service (IRS) tax code exempts qualified nonprofit organizations from federal taxes. A nonprofit organization is an organization that engages in activities for both public and private interest without pursuing the goal of commercial or monetary profit. To be exempted from federal taxes, nonprofit organizations have to meet certain rules. Some of these rules include:
Nonprofits are also exempt from paying sales and property taxes. While the income of a nonprofit organization may not be subject to federal taxes, nonprofit organizations do pay employee taxes (Social Security and Medicare) just like any for-profit company. To learn more about tax issues for nonprofit organizations, go to the IRS website. (Learn more about nonprofit financial statements in Navigating Government And Nonprofit Financial Statements.)
- Being organized and operated exclusively for charitable, scientific, religious or public safety purposes.
- Collecting income and turning over entire amount less expenses to organizations or individuals who are lawfully recognized as legitimate charities.
Nonprofits are also exempt from paying sales and property taxes. While the income of a nonprofit organization may not be subject to federal taxes, nonprofit organizations do pay employee taxes (Social Security and Medicare) just like any for-profit company. To learn more about tax issues for nonprofit organizations, go to the IRS website. (Learn more about nonprofit financial statements in Navigating Government And Nonprofit Financial Statements.)
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Chizoba Morah
Chizoba Morah is an accomplished author and teaching assistant who specializes in accounting basics, personal finance and taxes. Currently an MBA student at Morgan State University, she is planning and looks forward to being the successful owner of her own accounting firm.
