Yes. Nonprofits do file taxes, though for most tax-exempt organizations the yearly filing is an information return rather than a bill. Under Internal Revenue Code Section 6033, nearly every organization exempt under Section 501(a) must submit an annual return to the IRS disclosing its finances, governance, and activities.1Office of the Law Revision Counsel. 26 USC 6033 – Returns by Exempt Organizations On top of that, a nonprofit with employees pays payroll taxes like any other employer, and a nonprofit that earns money from activities outside its exempt mission owes federal income tax on that income.
Which Return Your Nonprofit Files
The IRS sorts exempt organizations into tiers based on gross receipts and total assets at the end of the tax year.2Internal Revenue Service. Form 990 Series – Which Forms Do Exempt Organizations File
- Full Form 990 is required if gross receipts are $200,000 or more, or total assets are $500,000 or more. It asks for detailed revenue, expenses, executive compensation, board governance, and program information.
- Form 990-EZ is available if gross receipts are under $200,000 and total assets are under $500,000. It covers similar ground in a shorter format.
- Form 990-N, the electronic postcard, is open to organizations whose gross receipts are normally $50,000 or less. It asks for only eight basic items about the organization.3Internal Revenue Service. Annual Electronic Filing Requirement for Small Exempt Organizations – Form 990-N (e-Postcard)
- Form 990-PF is filed by every private foundation, no matter its size.4Internal Revenue Service. Instructions for Form 990-PF
For an organization at least three years old, the $50,000 e-Postcard threshold is a rolling three-year average of gross receipts.3Internal Revenue Service. Annual Electronic Filing Requirement for Small Exempt Organizations – Form 990-N (e-Postcard) A small organization eligible for the postcard can always choose to file a full Form 990 or 990-EZ instead.
When the Return Is Due
Form 990, 990-EZ, and 990-PF are all due on the 15th day of the 5th month after the tax year ends.5Internal Revenue Service. Annual Exempt Organization Return – Due Date For a calendar-year nonprofit, that is May 15. If the deadline lands on a weekend or federal holiday, it moves to the next business day.
Filing Form 8868 before the original due date buys an automatic six-month extension for Form 990, 990-EZ, 990-PF, and 990-T.6Internal Revenue Service. Extension of Time to File Exempt Organization Returns The e-Postcard cannot be extended. An extension of time to file is not an extension of time to pay, so any tax owed (typically unrelated business income tax) should go in with Form 8868 to avoid interest and penalties.
Nonprofits That Do Not Have to File
Some tax-exempt entities are excused from the annual 990-series filing altogether. Churches, their integrated auxiliaries, and conventions or associations of churches do not file, and the exemption also covers the exclusively religious activities of religious orders.1Office of the Law Revision Counsel. 26 USC 6033 – Returns by Exempt Organizations7Internal Revenue Service. Filing Requirements for Churches and Religious Organizations Government entities and certain political organizations fall outside the standard framework as well and have separate reporting rules.
What Happens If You Don’t File
Late filing without reasonable cause triggers a daily penalty. Smaller organizations pay $20 for each day the return is late, capped at the lesser of $12,000 or 5 percent of gross receipts for the year.8Internal Revenue Service. Exempt Organizations Annual Reporting Requirements – Late Filing of Annual Returns Organizations with gross receipts above roughly $1.2 million (a figure the IRS adjusts for inflation) face $120 per day up to $60,000.9Office of the Law Revision Counsel. 26 USC 6652 – Failure to File Certain Information Returns If the IRS sends a written demand and the responsible person still does not file, that person can be personally charged $10 per day, up to $5,000.
The bigger risk is losing exempt status entirely. A nonprofit that fails to file its required return or notice, including the e-Postcard, for three consecutive years is automatically revoked.10Internal Revenue Service. Automatic Revocation of Exemption Revocation takes effect on the original due date of the third missed return. The IRS cannot reverse an automatic revocation, and there is no appeal. Getting exemption back means filing a new application: the user fee is $600 for Form 1023, or $275 for the streamlined Form 1023-EZ.11Internal Revenue Service. Frequently Asked Questions About Form 1023 During the gap, the organization can be treated as a taxable entity, and donors cannot deduct contributions made while the exemption is revoked.
Payroll Taxes If You Have Employees
Tax-exempt status has no effect on payroll obligations. A nonprofit that pays employees must withhold federal income tax from their wages and pay Social Security and Medicare taxes just like a for-profit employer.12Internal Revenue Service. Forms 941, 944, 940, W-2 and W-313Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax14Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax Most nonprofits report these amounts quarterly on Form 941; some small employers qualify to use the annual Form 944 instead.
Federal unemployment tax works differently. Section 501(c)(3) organizations are exempt from FUTA and do not file Form 940.15Internal Revenue Service. Exempt Organizations – What Are Employment Taxes Other exempt types, such as 501(c)(4) social welfare organizations and 501(c)(6) trade associations, are not exempt from FUTA and do file Form 940 each year.
Late payroll deposits carry escalating penalties that top out at 15 percent, and each tier replaces the previous one rather than stacking.16Internal Revenue Service. Failure to Deposit Penalty Anyone with authority over the organization’s finances who willfully fails to collect and pay over withheld taxes can be held personally liable for 100 percent of the unpaid trust fund amount under the trust fund recovery penalty.17Internal Revenue Service. 5.19.14 Trust Fund Recovery Penalty (TFRP)
Tax on Unrelated Business Income
A nonprofit can be fully tax-exempt and still owe income tax. Under Section 511, unrelated business taxable income is taxed at the standard 21 percent corporate rate.18Office of the Law Revision Counsel. 26 USC 511 – Imposition of Tax on Unrelated Business Income Income counts as unrelated business income when it comes from a trade or business that is regularly carried on and not substantially related to the organization’s exempt mission.
Once gross income from an unrelated business hits $1,000 for the year, the nonprofit must file Form 990-T to report the income and calculate the tax.19Internal Revenue Service. Unrelated Business Income Tax Common examples include selling advertising in a nonprofit publication, renting out debt-financed property, or running a commercial service open to the public. Expenses directly connected to the unrelated activity can be deducted.
Form 990-T follows the same deadline as the rest of the 990 series and is eligible for the same six-month extension on Form 8868.20Internal Revenue Service. Return Due Dates for Exempt Organizations – Form 990-T (Corporations) If the nonprofit expects to owe $500 or more in unrelated business income tax for the year, it also owes quarterly estimated payments.21Internal Revenue Service. Estimated Tax – Unrelated Business Income Heavy reliance on unrelated business income can eventually threaten exempt status if the commercial activity becomes the organization’s primary focus.
State Filings Are Separate
Federal filings do not cover state obligations. Most states require nonprofit corporations to file an annual report with the Secretary of State to keep corporate status active, and organizations that solicit donations from the public generally have to register with a state charity regulator, often the attorney general’s office, before asking for contributions. Exemptions from state sales tax and property tax typically require their own applications; federal 501(c)(3) recognition is usually a prerequisite but not enough on its own. Rules and fees vary by state, so check with the state revenue department and Secretary of State for exact requirements.