Do nonprofit organizations pay taxes?

By Chizoba Morah AAA

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:

    1. Being organized and operated exclusively for charitable, scientific, religious or public safety purposes.
    2. Collecting income and turning over entire amount less expenses to organizations or individuals who are lawfully recognized as legitimate charities.

    If a nonprofit organization engages in activities that are unrelated to their basic purpose, they are required to pay income taxes on that money. For example, if nonprofit organization ABC was formed to provide shelter for the homeless and it makes some money selling bicycles, that income may be eligible for income tax purposes.

    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.)


    1. What's the difference between regressive and progressive taxes?

      Learn what a regressive tax is in comparison to a progressive tax, and understand the specific types of taxes that are considered ...
    2. How is compound interest taxed?

      Understand the concept of compound interest as opposed to simple interest and learn the usual tax rate at which compound ...
    3. Is the marginal tax rate a progressive tax?

      Learn how the marginal tax rate is a progressive tax that takes a higher percentage of income tax from high-income earners ...
    4. Are marginal tax rate schemes more fair than flat taxes?

      Discover why marginal tax rates are used so widely as the fairest compromise between the two other extremes of tax code: ...
    1. Deferred Tax Asset

      A deferred tax asset is an asset on a company's balance sheet ...
    2. National Motor Freight Traffic Association (NMFTA)

      A nonprofit organization representing interstate, intrastate, ...
    3. Guarantee Company

      A form of corporation designed to protect members from liability, ...
    4. Buffett Rule

      A tax rule proposed in 2011, by President Barack Obama, stating ...
    5. Economist Intelligence Unit - EIU

      An organization that provides forecasting and advisory services ...
    6. Benefits Received Rule

      1. A theory of income tax fairness that says people should pay ...

    You May Also Like

    Related Articles
    1. Investing What It Is and How It ...

    2. Investing News

      Approved: Paying Online Sales Tax

    Trading Center