The terms are often used interchangeably. A nonprofit is usually tax-exempt for a charitable purpose, while a not-for-profit may simply not aim to earn profit, like a club.
The terms
In practice, the terms are often used interchangeably.
Nonprofit
An organization with a purpose other than profit. It can’t distribute profits to owners. Often 501(c)(3) tax exempt.
Not-for-profit
Sometimes used for groups that run on a break-even basis, such as clubs. Some states define them differently.
Tax exempt
Neither term guarantees tax exemption. An organization must apply to the IRS.
Example
Charities and universities.
Legal usage in the US
“Nonprofit” and “not-for-profit” are often used interchangeably, but some state laws differentiate. A nonprofit organization is formed for a public or charitable purpose, with any surplus reinvested in its mission instead of paid to owners. A not-for-profit can refer to groups such as clubs or hobby associations that run without a profit motive but may not serve the public.
- Section 501(c)(3) of the Internal Revenue Code grants federal tax exemption to charitable, religious and educational organizations, and donors can deduct contributions.
- There are about 1.5 million tax-exempt organizations registered with the IRS in the US.
- Nonprofits file Form 990 annually, and most are public records.
Differences in practice
Being nonprofit does not mean staff are unpaid or that the group cannot earn revenue. Surplus cannot be distributed to private owners. Other 501(c) types include 501(c)(4) social welfare groups and 501(c)(6) trade associations. State rules vary, so check the state attorney general or secretary of state for registration requirements.
Legal usage in the US
Under US federal law, a nonprofit organization is one organized for purposes other than profit, and tax exempt status under section 501(c)(3) is granted by the IRS to charitable organizations that meet requirements. The terms nonprofit and not for profit are often used interchangeably, but some states distinguish them. Nonprofits typically pursue public benefit, while not for profit might include clubs or groups serving members.
Practical differences
Neither distributes profit to owners. Surpluses must be reinvested into the mission. Tax exemption must be applied for separately from state incorporation. Charitable donations to 501(c)(3) organizations may be tax deductible for donors who itemize. Check the IRS Tax Exempt Organization Search to verify status.
Tax exemption requirements
A 501(c)(3) must be organized and operated exclusively for exempt purposes such as charitable, religious, educational or scientific. Form 1023 filing fee is 600 USD, and Form 1023-EZ costs 275 USD for small organizations. Net earnings cannot benefit private individuals. Annual Form 990 filings are public.
Not for profit variants
A social club may be a 501(c)(7) and trade associations 501(c)(6). There are about 1.5 million nonprofit organizations registered in the US, employing around 12.8 million people, according to the Urban Institute and Bureau of Labor Statistics.
Based on data from the Internal Revenue Service and the Urban Institute
