Do Nonprofits Pay Taxes?
Generally, tax-exempt nonprofits do not pay federal income tax on money earned through activities related to their charitable or exempt purpose.
However, that does not mean nonprofits can ignore the IRS. Most tax-exempt organizations MUST still file a Form 990-series return or notice every year to report their activities and remain in good standing.
Do Nonprofits Ever Owe Taxes?
Some nonprofits may still owe certain taxes.
For example, a nonprofit may owe tax on income from a regularly conducted business activity that is unrelated to its exempt purpose. Nonprofits with employees may also have employment-tax and payroll-reporting obligations.
For most small nonprofits, though, the primary annual responsibility is filing the correct Form 990-series return.
Depending on the organization’s size, this may be:
- Form 990-N
- Form 990-EZ
- Form 990
For detailed instructions, read our guide on How to File Nonprofit Taxes.
Why Must Nonprofits File Annually?
Annual filings help the IRS confirm that the organization is still operating and complying with the rules for tax-exempt organizations.
Failing to file can have serious consequences. A nonprofit that misses its required annual filing for three consecutive years will generally have its federal tax-exempt status automatically revoked.
Once exemption is lost, the organization may:
- Become responsible for federal income taxes
- Face problems with grants and fundraising
- Lose donor confidence
- Incur reinstatement fees and paperwork
- Experience state compliance or banking issues
Check Your Nonprofit’s Filing History
Before starting a return, use the nonprofit search tool on Pro990.org to review your organization’s filing history.
This can help you confirm which form was filed previously, identify missing years, and verify the most current filing information available.
Keep Your Nonprofit Tax-Exempt
Most nonprofits do not pay federal income tax on activities related to their exempt purpose, but they still must meet their annual IRS filing obligations.
Review your filing history, determine which Form 990 your organization needs, and file every year to help protect its tax-exempt status.