Many people think nonprofit organizations do not deal with taxes at all. That is not correct. In the United States, nonprofit organizations may be exempt from paying federal income tax, but they are still required to file annual tax returns.
The main difference is that a nonprofit does not file the same tax return as a normal business. Instead of reporting profit and paying tax on it, nonprofits file an informational return. This return shows the government how the organization received money and how it used that money.
The form used for this purpose is called Form 990. Here you will learn how to file a US Nonprofit Organization Tax Return, and I will also explain to you the Form 990 in this regard.
What Is a Nonprofit Organization in the US?
A nonprofit organization is created to serve a public or charitable purpose instead of earning profit for owners. Common examples include charities, religious organizations, educational institutions, and social welfare groups.
Most charitable nonprofits apply for tax-exempt status under section 501(c)(3) of the Internal Revenue Code. Once approved, they are generally exempt from federal income tax.
However, being tax-exempt does not mean they can ignore tax filing responsibilities.
What Is Form 990?
Form 990 is the annual return that tax-exempt organizations must file with the Internal Revenue Service. It does not calculate income tax like a business return. Instead, it reports financial activity, leadership details, salaries of key officials, and how funds were used.
It helps ensure transparency and accountability.
There are different versions of Form 990 depending on the size of the organization.
| Form Type | Who Files It | When It Is Used |
|---|---|---|
| Form 990 | Large nonprofits | When gross receipts are $200,000 or more |
| Form 990-EZ | Medium-sized nonprofits | When gross receipts are less than $200,000 |
| Form 990-N (e-Postcard) | Small nonprofits | When gross receipts are normally $50,000 or less |
| Form 990-PF | Private foundations | Filed regardless of income size |
The larger the nonprofit, the more detailed the reporting requirements.
What Information Is Reported on Form 990?
Form 990 requires nonprofits to disclose their total revenue for the year. This includes donations, grants, membership fees, fundraising income, and investment income.
It also requires reporting of expenses. These expenses may include program costs, administrative expenses, fundraising costs, employee salaries, and operational expenses.
In addition, the form asks for information about the board of directors, key employees, and their compensation. This promotes transparency so donors and the public can see how funds are managed.
Unlike private businesses, nonprofit Form 990 returns are publicly available. Anyone can review them.
Learn more: How to File a U.S. Business Tax Return
Do Nonprofits Pay Any Taxes?
Even though nonprofits are exempt from federal income tax on their charitable activities, they may still pay other taxes.
For example, if a nonprofit has employees, it must withhold and pay payroll taxes. It may also owe state taxes, property taxes, or sales taxes, depending on state law.
There is also something called Unrelated Business Income Tax. If a nonprofit earns money from activities not related to its charitable purpose, that income may be taxable. In that case, the organization files Form 990-T to report and pay tax on that unrelated income.
So, tax-exempt does not mean tax-free in every situation.
Filing Deadline
The annual Form 990 must generally be filed by the 15th day of the fifth month after the organization’s accounting year ends.
For example, if the nonprofit follows a calendar year ending December 31, the filing deadline is May 15 of the following year.
If more time is needed, the organization can request an extension.
Failure to file for three consecutive years can result in automatic loss of tax-exempt status. This is a serious issue and requires a formal process to regain exemption.
Read more: How to File a US Individual Tax Return
Why Filing Is Important
The US government requires nonprofits to file Form 990 to ensure accountability. Donors, grant providers, and even journalists review these forms before supporting an organization.
It shows how responsibly funds are used and whether the organization is fulfilling its mission.
Regular and accurate filing builds trust with the public.
Conclusion
Nonprofit organizations in the United States are not required to pay federal income tax on their charitable activities, but they must still file an annual return.
Instead of filing a business tax return like Form 1120, nonprofits file Form 990. The purpose is not to calculate tax but to report financial transparency.
Small nonprofits file a simple online notice. Medium and large organizations file more detailed reports. Private foundations have their own version.
Understanding this system makes it clear that nonprofits are monitored carefully. They receive tax benefits, but in return, they must maintain transparency and follow strict reporting rules.
If you would like, next we can create the section on Estate and Trust Tax Returns to complete your US tax return series.
