What is the Difference between a Nonprofit Organization and a Charity?

While all charities are nonprofits, not all nonprofits are charities. 

While all charities are nonprofits, not all nonprofits are charities. Here, you’ll find the primary differences between the two:

Defining characteristics

A nonprofit corporation is based on the simple premise that none or the corporation’s net profit from donations, membership fees, or any kind of business activities will benefit any individual. There are many different types of nonprofit organizations. Many homeownership associations, clubs, and other various organizations are nonprofits; often, though, these types of organizations are formed as mutual benefit nonprofit corporations, as they do not benefit the general public. Those nonprofits that do benefit the general public are typically the best known type of nonprofit—we call them charities.

What is a charity? A charity is a nonprofit whose purpose is to, in some way, benefit the general public. A charity’s goals are philanthropic and aim to improve the quality of life for the community and beyond. Below, you’ll find examples of organizations that generally fall under a charitable definition:

  • Churches or associations of churches.
  • Educational organizations.
  • Hospitals and medical research organizations.
  • Organizations that provide support for state colleges or universities.
  • Governmental units of the United States.

Charity taxes

Technical characteristics that also separate charities from other nonprofits are the kinds of tax returns a charity is required to file. A charity is eligible to apply for 501c3 tax-exempt status because of its charitable purpose, and may also be exempt from state and local taxes as well. These charities are also able to receive tax-deductible donations. Come tax time, these are the filing options for charities:

  • Form 990, a Return of Organization Exempt from Income tax form
  • Form 990-EZ, Short Form Return of Organization Exempt from Income tax form
  • Form 990-N, the Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required to file form 990 or 990-EZ

Which form they file depends on the amount of their gross receipts and total assets. If the charity’s gross receipts are less than or equal to $50,000, then form 990-N will be filed. If the gross receipts are between $50,000 and $200,000, and total assets are less than $500,000, form 990-EX or 990 should be filed. If the gross receipts are greater than $200,000, and the assets are above half a million, then Form 990 will be filed by the charity.

The bottom line

Throughout the world there are many kinds of nonprofits and charities are one type of nonprofit. Generally, if the nonprofit earns more than a third of its income via public solicitation, it will be defined by the IRS as a charity. However, most states will require nonprofits to register as a charity if any type of public solicitation is performed by the organization. So, what the actual trick to determining whether a nonprofit is a charity? That answer will reliably be found in the organization’s purpose. If the nonprofit’s purpose is educational, religious, provides funds or services to help support medical research, or promotes a cause that in some way could benefit the general public, 99 percent of the time, that entity is known as a charity.

About the Author

Drake Forester, Chief Legal Strategiest - Northwest Registered AgentDrake Forester is the chief legal strategist at Northwest Registered Agent, LLC. Throughout his career, Drake has researched many complicated nonprofit compliance issues and provided whitepaper and publications for many leading nonprofit organizations in the United States.