While starting and running a nonprofit can be a fulfilling experience, it’s also a complicated endeavor. Nonprofit organizations are subject to just as many rules and regulations as for-profit ventures. Because nonprofits are typically exempt from federal income tax, the US Internal Revenue Service (IRS) is careful to be specific and comprehensive in qualifying organizations. The result is a long list of nonprofit types, delineated by the Internal Revenue Code, which range from very broad to very niche.
What is a nonprofit?
A nonprofit organization is a business organized for purposes other than turning a profit. Officially, a nonprofit organization (NPO) is a business that has been granted tax-exempt status by the IRS on the basis that it advances a social cause benefiting the public in some way. Nonprofits are prohibited from distributing profits they generate toward anyone or anything other than advancing the organization.
20 Types of nonprofit organizations
Nonprofits serve an immense range of causes, from historical preservation to scientific research. While all nonprofit organizations enjoy an exemption from federal income tax, not all types are able to extend tax deductions to their donors. Note that most of these types of organizations are highly specific tax designations, and are sometimes meant to be formed as subsidiaries of larger nonprofit companies mainly for the purpose of liability protection. These are 20 common types of nonprofits you may encounter as you start or grow your own nonprofit
501(c)(1): Organized by an act of Congress
These are nonprofits organized by an act of Congress, such as federal credit unions. Since these organizations are set up by federal lawmakers, there is no application process and they don’t file tax returns.
501(c)(2): Titleholders for exempt organizations
501(c)(2) organizations hold titles to property (usually real estate or intellectual property) on behalf of other tax-exempt organizations. A 501(c)(2) can only be formed as a subsidiary of another nonprofit corporation, and they exist to shield property-owning organizations from some forms of legal liability.
501(c)(3): Charitable organizations
Most nonprofits fall under 501(c)(3), such as religious, educational, and scientific organizations; public charities, etc. Examples include disease research institutions, churches and synagogues, and traditional charitable organizations. Donations made to these are tax deductible.
501(c)(4): Civic leagues, social welfare organizations, local employee associations
These nonprofits have fewer restrictions when it comes to political activity, such as lobbying or fundraising for candidates. The NRA, ACLU, and Sierra Club are all 501(c)(4) organizations that engage in political activity. 501(c)(3) organizations can’t be involved in this type of active political participation. Donations to this type of organization are not tax-deductible.
501(c)(5): Labor, agricultural, and horticultural organizations
The missions of these nonprofits is to improve working conditions and promote efficiency and quality of work in farming. These nonprofits can engage in political activity. Like labor unions, 501(c)(5) organizations are funded through membership dues and donations, which are only potentially deductible as a business expense.
501(c)(6): Trade and professional associations
These nonprofits include business leagues (associations of insurance brokers, realtors, accountants, etc.), chambers of commerce, and real estate boards. Their purpose is to promote good business conditions, and they may engage in political activity. They are funded by membership dues as well as paid educational programs.
501(c)(7): Social and recreational clubs
These are not-for-profit organizations, which differ from nonprofits in that they are not necessarily concerned with the furtherance of a social cause or public benefit. These organizations exist for the organization of activities for recreation or socialization, such as country clubs and sports leagues.
501(c)(8): Fraternal societies
A 501(c)(8) is a not-for-profit lodge society (meaning it meets regularly at a designated location) created to pay benefits to its members, such as sickness, accident, or life. They include service clubs, lineage clubs, and secret societies. Donations to 501(c)(8) organizations are not tax-deductible.
501(c)(9): Employee beneficiary associations
These nonprofits, called voluntary employee benefits associations or VEBA, provide payment to their members and their dependents in the event of an inability to work (due to illness or injury) or some other unforeseen event. Members must have a common bond, such as being employees of the same employer or members of the same labor union. These are typically funded by both the employers and the employees.
501(c)(10): Domestic fraternal societies and associations
Unlike 501(c)(8) and (9) organizations, these entities do not provide payment to members, they merely exist to support members’ preferred outside causes, such as third-party charities.
501(c)(11): Teachers’ retirement fund associations
These organizations source income through dues paid by public school teachers, tax revenues, and investment income. The funds pay the pensions for retired public school teachers.
501(c)(14): State-chartered credit unions and mutual reserve funds
These organizations provide financial services to members and the broader community, usually at a discount. They generate income through standard lending practices and government grants.
501(c)(15): Mutual insurance companies of association
These nonprofits offer insurance plans to local members at cost, usually for property damage, burials, and funerals.
501(c)(16): Cooperative organizations to finance crop operations
Under 501(c)(16) organizations, groups of farmers come together to pool resources for agricultural operations, usually to buy equipment, cultivate crops, take care of livestock, or handle shipping and marketing operations.
501(c)(17): Supplemental unemployment benefits trusts
These exist to provide financial support to members—employees of the same employer—who are permanently or temporarily unemployed.
501(c)(18): Employee-funded pension trusts
This section of the Internal Revenue Code applies to employee-funded pension trusts created before June 25, 1959. These are funded only by member contributions and are used to pay out benefits to them.
501(c)(22): Withdrawal liability payment funds
These organizations are meant to meet employers’ obligations when they withdraw from multi-employer pension funds. They are funded by the employers themselves.
501(c)(23): Veterans organizations, pre-1880
This designation is solely for veterans organizations established before 1880, providing insurance and benefits to members. As with 501(c)(19) organizations, these must contain a membership of at least 75% armed services members, past or currently active. Funding comes from donations and grants.
501(c)(26): State-sponsored organizations providing health coverage for high-risk individuals
Members in these organizations are typically patients with certain medical risks of preexisting conditions who may not be able to get insured through other means. Funding comes from donations and grants.
501(c)(27): State-sponsored workers’ compensation reinsurance organizations
These nonprofits exist to provide workers’ compensation insurance to member organizations. They are funded by grants and membership dues.
Other 501(c) organizations
There are nine other 501(c) organizations that are specific to different laws (such as 501(c)(24), which is for trusts created under section 4049 of the Employee Retirement Income Security Act of 1974) or were created for specific groups of people (such as 501(c)(21), for trusts benefitting people with black lung, or 501(c)(28), which is the Railroad Retirement Board’s trust).
Organizing your business as a nonprofit may be advantageous if your goals are to advance social good or public benefit. Perhaps you hope to sell a product with the aim of using the funds to support some important cause.Given the breadth of options available, choosing which type of tax-exempt status to apply for when forming your nonprofit can seem like a daunting task. Any potential nonprofit founder should consult an experienced nonprofit lawyer or relevant accounting professional for guidance through the process. This way, you can avoid selecting the wrong format for your nonprofit small business and risk forfeiting crucial tax-exempt status.