# Understanding 501(c) Organizations: Types, Benefits, and Examples

## What Is 501(c)?

501(c) is a subsection of the United States [Internal Revenue Code](https://www.investopedia.com/terms/i/internal-revenue-code.asp) (IRC) that confers tax-exempt status on [nonprofit organizations](https://www.investopedia.com/terms/n/non-profitorganization.asp). These can include charities, advocacy groups, religious entities, and more. Specifically, it identifies which nonprofit organizations are exempt from paying [federal income tax](https://www.investopedia.com/terms/f/federal_income_tax.asp). Tax-exempt status is vital to the public welfare because it supports the sole intentions of organizations to aid others. Therefore, it's important to understand the 501(c) eligibility criteria and requirements that must be met to maintain 501(c) status.

### Key Takeaways

*   Section 501(c) of the IRC grants tax-exempt status to various nonprofit organizations, including charities and religious entities.
*   To qualify for a 501(c) designation, organizations must apply and meet IRS stipulations.
*   Donations to 501(c)(3) organizations can be tax-deductible for donors, offering financial incentives for contributions.
*   The 501(c) designation includes various types of nonprofits, such as fraternal societies, teacher's associations, and credit unions.

![501(c) Organization: A nonprofit organization exempt from paying federal income tax.](https://www.investopedia.com/thmb/C4UMnSC7kzLyoyt8A65c5kQbPfc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/501c_final-1280123c54fe41fdad5c8281cdcbdf78.png)

*— Investopedia / Michela Buttignol*

## Exploring Different Types of 501(c) Organizations

Under subsection 501(c), there are multiple sections that delineate the different types of tax-exempt organizations, according to their purpose and operations.

The most common include:

*   501(c)(1): Any corporation that is organized under an act of [Congress](https://www.investopedia.com/government-and-policy-4689793) that is exempt from federal income tax
*   501(c)(2): [Corporations](https://www.investopedia.com/terms/c/corporation.asp) that hold a title of property for exempt organizations
*   501(c)(3): Corporations, funds, or foundations that operate for religious, charitable, scientific, literary, or educational purposes
*   501(c)(4): Nonprofit organizations that promote social welfare
*   501(c)(5): Labor, agricultural, or horticultural associations
*   501(c)(6): Business leagues, [chambers of commerce](https://www.investopedia.com/terms/c/chamber-of-commerce.asp), and others that are not organized for profit
*   501(c)(7): Recreational organizations

> **Fast Fact**
>
> Groups that fit these categories must apply for 501(c) classification and meet IRS requirements. Tax exemption is not automatic, regardless of the nature of the organization.

## Understanding 501(c)(3) Charitable Organizations

The [501(c)(3) organization](https://www.investopedia.com/terms/1/501c3-organizations.asp) is probably the most familiar tax category outlined in Section 501(c)(3) of the IRC. It covers the sort of nonprofits that people commonly come into contact with and donate money to.

In general, there are three types of entities that are eligible for 501(c)(3) status: charitable organizations, churches or religious entities, and [private foundations](https://www.investopedia.com/terms/p/privatefoundation.asp). 

## Additional Categories of 501(c) Organizations

The 501(c) designation has expanded over time to encompass more types of organizations.

Other organizations that qualify for listing under this designation can potentially include:

*   Fraternal beneficiary societies that operate under the lodge system and provide for the payment of life, illness, and other benefits for their members and dependents
*   Teacher's retirement fund associations, so long as they are local in nature and none of their net earnings grow for the benefit of a private shareholder
*   Benevolent life insurance associations that are local
*   Certain mutual cooperative electric and telephone companies
*   Nonprofit, co-op health insurers
*   Cemetery companies that are owned and operated for the exclusive benefit of their members or are not operated for profit
*   [Credit unions](https://www.investopedia.com/terms/c/creditunion.asp) that do not have capital stock organized
*   Insurers—aside from life insurance companies—with gross receipts that are less than $600,000
*   A variety of [trusts](https://www.investopedia.com/terms/t/trust.asp) for such purposes as providing supplement unemployment benefits and pensions
*   Organizations whose membership is made up of current and former members of the armed forces of the United States or their spouses, widows, descendants, and auxiliary units in their support

> **Important**
>
> Tax-exempt organizations must file certain documents to maintain their status, as explained in IRS Publication 557.

## Making Tax-Deductible Donations to 501(c) Organizations

In addition to being tax-exempt themselves, 501(c) organizations offer a tax advantage to others: A portion of donations they receive may be deductible from a taxpayer's [adjusted gross income (AGI)](https://www.investopedia.com/terms/a/agi.asp). Organizations falling under section 501(c)(3)—which are primarily charities and educational or social-welfare-orientated nonprofits—are often qualified to offer this benefit to donors.

Generally, someone who itemizes [deductions](https://www.investopedia.com/terms/t/tax-deduction.asp) can deduct donations to most charities up to 50% (or 60% for cash) of their AGI. Individuals generally may deduct charitable contributions to other organizations up to 30% of their AGI.

> **Tip**
>
> The IRS provides a database to check an organization's exempt status.

To deduct your donation on a federal tax return, the charity must have 501(c)(3) status. The organization itself can often tell you which sorts of donations are deductible, and to what extent—for example, if you buy a one-year museum membership for $100, $50 might be deductible.

## What Is the Meaning of 501(c) Organization?

If an organization is labeled 501(c), it means it is a nonprofit organization concerned with providing a public benefit and is exempt from paying federal income taxes. The 501(c) designation encompasses many types of organizations, including charities, government entities, advocacy groups, educational and artistic groups, and religious entities. 

## What Is the Difference Between a 501(c) and a 501(c)(3)?

501(c) and 501(c)(3) are two different tax categories in the Internal Revenue Code. Both are nonprofit organizations exempt from federal income tax. However, a 501(c)(3)—which consists of charitable organizations, churches/religious entities, and private foundations—can also tell its donors that they can deduct their contributions on their tax returns.

## What Are the Types of Nonprofits?

The IRS has issued a long list of the types of nonprofit organizations that can qualify for 501(c) status. Common examples include charitable organizations, churches and religious organizations, social advocacy groups, and trade organizations.

## The Bottom Line

501(c) organizations are nonprofit entities that aid public welfare and are an important presence in society. The U.S. government grants these entities 501(c) status as they ease state burdens and benefit people. The IRS recognizes dozens of different types of nonprofit organizations as 501(c)s, including charities, government entities, advocacy groups, educational institutions, and some credit unions and insurers. 501(c)(3) is a specific and widely recognized category within 501(c) that provide tax-deductibility of donations. Tax exempt status is not automatic. Organizations must apply and qualify for it by meeting IRS stipulations. When considering a donation to an organization, check the organization's status through the IRS's exempt organization database.

> **Article Sources**
>
> 1.  U.S. Government Publishing Office. "[Title 26-Internal Revenue Code](https://www.govinfo.gov/content/pkg/USCODE-2011-title26/pdf/USCODE-2011-title26-subtitleA-chap1-subchapF-partI-sec501.pdf)," Pages 1455-1456.
>     
> 2.  Internal Revenue Service. "[Application for Recognition of Exemption](https://www.irs.gov/charities-non-profits/application-for-recognition-of-exemption)."
>     
> 3.  U.S. Government Publishing Office. "[Title 26-Internal Revenue Code](https://www.govinfo.gov/content/pkg/USCODE-2011-title26/pdf/USCODE-2011-title26-subtitleA-chap1-subchapF-partI-sec501.pdf)," Pages 1456-1459.
>     
> 4.  Internal Revenue Service. "[Publication 557](https://www.irs.gov/pub/irs-pdf/p557.pdf)."
>     
> 5.  Internal Revenue Service. "[Exemption Requirements—501(c)3 Organizations](https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations)."
>     
> 6.  Internal Revenue Service. "[Tax Exempt Organization Search: Deductibility Status Codes](https://www.irs.gov/charities-non-profits/tax-exempt-organization-search-deductibility-status-codes)."
>     
> 7.  Internal Revenue Service. "[Tax Exempt Organization Search](https://apps.irs.gov/app/eos/)."