Nonprofit vs Not-for-Profit: What Is the Difference?
In US federal tax law there is no separate 'not-for-profit' category, and for most practical purposes the terms are interchangeable. Where a distinction is drawn, 'not-for-profit' is the broader accounting term and 'nonprofit' the everyday one. Neither is what determines whether donations are deductible.
Short answer: in United States federal tax law, there is no category called “not-for-profit”. The IRS does not grant not-for-profit status, because no such status exists to grant.
For nearly every practical purpose the two words mean the same thing, and if someone tells you your organization is one rather than the other, they are usually describing a preference in vocabulary rather than a difference in law.
Where the distinction does exist
Three places, and none of them change what you file.
Accounting standards. US accounting standards use “not-for-profit entity” as the formal term. If your auditor says not-for-profit, that is why. It is the technical vocabulary of financial reporting, not a legal classification.
State statutes. A minority of states name their statute the Not-For-Profit Corporation Act rather than the Nonprofit Corporation Act. The organizations formed under them are identical in substance.
Informal usage. Some people use “not-for-profit” for activities that are not run to make money, such as a club or a hobby group, and reserve “nonprofit” for organizations with formal charitable status. This is a real convention in conversation and has no legal weight at all.
The distinction that actually matters
People asking this question are usually trying to answer a different one: can donors deduct their gifts?
That turns on your exemption category, not on which of these two words you use. The dividing line is 501(c)(3) against everything else.
A 501(c)(3) can receive deductible contributions. A 501(c)(4) social welfare organization, a 501(c)(6) trade association and a 501(c)(7) social club are all nonprofits, all tax exempt, and none of them can. Their donors get no deduction.
So the useful question is never nonprofit or not-for-profit. It is which subsection of 501(c) you fall under.
The other confusion worth clearing up
Both words describe a restriction on distributing surplus, not an absence of surplus.
Neither term means the organization cannot make money, pay salaries, hold reserves or run a commercial operation. It means the money cannot be handed out to owners, members or directors. An organization spending every dollar it receives is not more virtuous, it is less resilient.
What to write on a form
Use whatever the form uses. If it asks for nonprofit status, that is what you have. If your auditor’s letter says not-for-profit entity, that is the same organization described in accounting language.
Where precision genuinely matters, drop both words and use the specific one: “a 501(c)(3) public charity” says everything the other terms leave ambiguous, and it is what funders and banks are actually asking for.
Outside the United States
Worth knowing if you work internationally, because the vocabulary does not travel.
The United Kingdom distinguishes charities, registered with a charity regulator, from the broader non-profit sector. Canada distinguishes registered charities from non-profit organisations, and the difference there is substantive: only registered charities can issue donation receipts for tax purposes.
So a distinction that is largely cosmetic in the US is real elsewhere. If you are reading guidance written for another country, check which system it assumes before applying it.
The three terms, side by side
| Nonprofit | Not-for-profit | 501(c)(3) | |
|---|---|---|---|
| What it is | Everyday term for the corporate form | Formal accounting term for the same thing | A federal tax status |
| Granted by | A state, on incorporation | Not granted, it is vocabulary | The IRS, on application |
| Costs anything | $8 to $226 | Nothing | $275 or $600 |
| Donations deductible | Not by itself | Not by itself | Yes |
| Used by | Almost everyone | Auditors, some state statutes | The IRS, funders, banks |
The comparison people actually need
If you are trying to work out what your organization is, the useful distinction is not between these two words. It is between the exemption categories, because that is what decides whether your donors get a deduction.
| Category | Typical organization | Donations deductible | May lobby |
|---|---|---|---|
| 501(c)(3) | Charity, school, arts organization, food bank | Yes | Limited, no campaign activity |
| 501(c)(4) | Advocacy and civic groups | No | Freely |
| 501(c)(6) | Trade association, chamber of commerce | No | Freely |
| 501(c)(7) | Social and recreational clubs | No | Limited |
Every organization in that table is a nonprofit, and every one of them could reasonably be called a not-for-profit. Only the first row can offer a deduction. That is the difference that changes what you can say on a donation page.
How to work out which you are
Look at your determination letter. It names the subsection you were granted and, for a 501(c)(3), whether you are classified as a public charity or a private foundation.
If you cannot find it, the IRS publishes a searchable list of organizations eligible to receive deductible contributions. Your entry there is the authoritative public answer, and it is what a cautious donor will check.
If you are not on it and believe you should be, that is worth investigating urgently. The most common reason an organization disappears from the list is automatic revocation for three consecutive missed annual returns.
Why the confusion persists
Three things keep this question alive despite there being no legal distinction to find.
The accounting profession uses one term and everyone else uses the other. If your auditor’s letter says not-for-profit entity and your website says nonprofit, it looks like two categories when it is one organization described in two registers.
Other countries do draw real distinctions. Guidance written for the UK or Canada separates registered charities from the wider non-profit sector, and that separation is substantive there. Read it while sitting in the US and you will reasonably assume the same line exists here.
The hyphen looks like it means something. “Not-for-profit” reads as more precise, so people assume precision is being signalled. It is not. It is a stylistic preference that happens to have been adopted by standard-setters.
If your documents use both
Plenty of organizations have articles of incorporation saying one thing, bylaws saying another, and a website saying a third. This is untidy rather than dangerous, and it does not affect your status.
It is worth tidying anyway, because inconsistency invites questions from funders who do not know it is cosmetic. Pick the term your state statute uses for your governing documents, and use plain “nonprofit” in public writing.
What genuinely does need to be consistent is your legal name. The name on your articles, your EIN confirmation, your determination letter and your bank account should match exactly. A mismatch there causes real friction, and it is the thing people should be checking instead of worrying about the hyphen.
The one place the wording matters
On a donation page.
Telling a donor you are “a nonprofit” is true and tells them nothing about deductibility, because 501(c)(4)s, (c)(6)s and (c)(7)s are all nonprofits too and none of their donors can deduct.
Say the specific thing: “a 501(c)(3) public charity”, with your EIN. It answers the question the donor is actually asking, it is what their accountant will want, and it costs you nothing but precision.
Where each term shows up in practice
| Where | Term you will see | Why |
|---|---|---|
| Your audited financial statements | Not-for-profit entity | The formal term in US accounting standards |
| Your IRS determination letter | Neither, it names a code section | Federal tax law classifies by subsection |
| Your articles of incorporation | Whichever your state statute uses | A minority of states say not-for-profit |
| Grant applications | 501(c)(3), usually | Funders need to know about deductibility |
| Bank account opening | Nonprofit | Common commercial usage |
| Job adverts and press | Nonprofit | What readers recognise |
Six documents describing one organization, using four different words. None of them contradicts the others, and none changes what you file or what your donors can claim.
The short version
If someone asks whether you are a nonprofit or a not-for-profit, the accurate answer is usually “both, they mean the same thing here”. If they are asking because they want to donate, the answer they need is your exemption category and your EIN.
Spend the attention you might have given this on the distinction that does carry consequences: public charity against private foundation, which changes your annual return, your donors’ deduction limits, and whether you face mandatory distributions.
Reference information, not legal or tax advice. Terminology varies by state and by country. Confirm your own classification at irs.gov or with a nonprofit attorney.
Questions people ask
Is one better than the other for getting grants?
No, because funders are not asking that question. They are asking whether you are a 501(c)(3), and usually a public charity rather than a private foundation.
Most foundation and government grant programmes require 501(c)(3) status as a threshold condition. Some will fund other exempt categories or work through a fiscal sponsor, but the word on your incorporation paperwork is never the deciding factor.
When a grant application asks for your status, give the specific answer: 501(c)(3) public charity, with your EIN and determination letter date.
Which term should we use in our own materials?
Nonprofit, in most cases. It is the common usage in the US, it is what your audience recognises, and search behaviour follows it heavily.
Use not-for-profit where the context is financial reporting, because that is the term your auditor and your accounting standards use.
Use the precise phrase, 501(c)(3), wherever the reader needs to know that donations are deductible. On a donation page that specificity does real work.
Do the two file different tax returns?
No. What determines your return is your exemption category and your size, not the word you use to describe yourself.
Every exempt organization files annually. Which form depends on gross receipts and total assets: the 990-N postcard at or under $50,000, the 990-EZ under $200,000 in receipts and $500,000 in assets, and the full 990 above either threshold. Private foundations file the 990-PF regardless of size.
Can a not-for-profit be a 501(c)(3)?
Yes, and most of the organizations described that way are exactly that.
The terms sit at different levels. Nonprofit and not-for-profit describe the corporate form and the non-distribution constraint. 501(c)(3) describes a federal tax status granted on top of it.
So an organization is typically a nonprofit corporation formed under state law, recognised by the IRS as exempt under 501(c)(3), and referred to in its audited accounts as a not-for-profit entity. All three at once, describing the same organization from three angles.
Is a not-for-profit allowed to make a profit?
Yes, and a well run one usually does. The word restricts distribution, not generation.
Surplus becomes reserves, and reserves are what let an organization survive a grant that pays late. Many funders now look for three to six months of operating reserves as a sign of competent management rather than treating them as hoarding.
What is prohibited is ending the year with a surplus and dividing it among the board.
Do banks treat them differently?
No. Banks care about documents, not vocabulary.
Opening a nonprofit account typically requires your articles of incorporation, your EIN confirmation, your bylaws, and a board resolution authorising the account and naming signatories. Many banks also want your IRS determination letter, though some will open an account while your application is pending.
If a form offers only 'nonprofit' as an option, tick it. There is no separate category you are missing.
What about 'charity'? Is that a third thing?
In US usage, charity is informal shorthand that maps roughly onto 501(c)(3). It is not a status the IRS grants under that name.
The distinction that does exist within 501(c)(3) is between a public charity and a private foundation. That one is substantive: private foundations face stricter rules, an excise tax on investment income, mandatory annual distributions, and lower deduction limits for their donors.
Elsewhere the word carries legal weight. In the UK and Canada, charity is a regulated designation with its own registration.
Does the difference affect volunteers or employees?
No. Employment law, payroll taxes and volunteer protections do not turn on which term you use.
What matters is that exemption from federal income tax is not exemption from payroll taxes. Those are owed in full. Withholding, Social Security and Medicare all apply exactly as they would at a company.
Volunteer classification is also unaffected, and the line between a volunteer and an unpaid worker who should be paid is drawn by labour law rather than by tax status. Paying a volunteer a stipend can cross that line without anyone intending it.
This is reference information, not legal or tax advice. Rules vary by state and change over time. For a decision that carries real consequences, check the current text at irs.gov or your state registry, and talk to a nonprofit attorney or CPA.