What’s the Difference Between Nonprofit, Not-for-Profit, and 501(c)(3)?

Nonprofit, not-for-profit, NPO, tax-exempt, 501(c)(3)… if you’ve heard these terms and wondered whether they all mean the same thing, you’re not alone. People often use these terms interchangeably, but they actually have different meanings that affect legal status, taxes, and how an organization can operate.

These differences matter when you’re starting an organization, making a donation, applying for funding, or researching career opportunities.

Key terms at a glance

Term	Main purpose	Tax status	Public benefit required?	Examples
Nonprofit	Serve public / social benefit	May be tax-exempt	Usually yes	Charity, hospital, university
Not-for-profit	Serve members	May be tax-exempt	Not always	Sports club, professional association
NPO	Same as nonprofit	May be tax-exempt	Usually yes	Any nonprofit entity
Tax-exempt	Any org exempt from federal income tax	Tax-exempt	Varies by IRS section	501(c)(3), 501(c)(4), etc.
501(c)(3)	Charitable, religious, educational, etc.	Tax-exempt; donations are deductible	Yes	Public charity, private foundation

What is a nonprofit organization?

A nonprofit organization exists for a purpose other than making profit for owners or shareholders. Nonprofits serve the public good, and they must put any extra money back into their mission instead of giving it to private individuals.

Common examples would be food banks, community theaters, environmental groups, and schools. When these organizations bring in more money than they spend, they use the extra funds to expand programs or build reserves, not to pay owners.

What is a not-for-profit organization?

In everyday conversation, people often use “not-for-profit” and “nonprofit” to mean the same thing, but U.S. law sees them differently. Not-for-profit organizations usually serve their members rather than the general public.

For example, a golf club that exists for its members’ enjoyment is a not-for-profit. So is a professional association that helps people in a specific industry network and learn. Like nonprofits, these organizations put extra money back into their activities, but they don’t necessarily focus on helping the public.

What does NPO mean?

NPO simply stands for “nonprofit organization.” People use this abbreviation in government documents, grant applications, and legal papers to refer to any organization that doesn’t operate to make a profit for individuals.

Understanding tax-exempt status

Tax-exempt means the IRS has granted an organization permission to skip paying federal income tax. Organizations must apply for this status and meet specific requirements—it doesn’t happen automatically.

The IRS offers tax-exempt status under various sections of the Internal Revenue Code, usually under section 501(c). Dozens of different 501(c) categories exist, each with its own rules and benefits.

Keep in mind: not all nonprofits qualify for tax-exempt status. They must apply to the IRS and prove that they meet all the requirements before they can claim tax-exempt status.

What is 501(c)(3) status?

501(c)(3) is probably the best known type of a tax-exempt status, and it’s also the most common. Organizations with this label operate exclusively for religious, charitable, scientific, educational, literary, or similar purposes that help the public.

Major benefits include no federal income tax, often no state or local taxes, and access to grants that only 501(c)(3)s can get. Donors can also deduct contributions to 501(c)(3)s on their tax returns.

But 501(c)(3) organizations also face limits. They can’t do much lobbying and can’t participate in political campaigns for or against candidates.

How these terms work together

Nonprofit, NPO, not-for-profit, tax-exempt, and 501(c)(3) all have distinct meanings, but there is some overlap. Let’s look at an example.

A community garden that gives fresh produce to food banks and teaches kids gardening skills would be:

• A nonprofit because it helps the public instead of making a profit
• An NPO in grant applications or legal documents
• Tax-exempt under section 510(c)(3) if it applied to the IRS and got approved

All 501(c)(3) organizations are nonprofits and tax-exempt, but not all nonprofits are 501(c)(3)s. Some qualify for different tax-exempt categories, like 501(c)(4) for social welfare groups or 501(c)(6) for business leagues.

Managing organizational finances

No matter what status an organization has, keeping accurate financial records matters. Modern accounting software makes financial management much easier. MoneyMinder’s nonprofit accounting software helps organizations handle their finances with features built for nonprofit groups, including bookkeeping and reporting.