501(c)(3) vs 501(c)(4): Key differences for nonprofits

We’ve been in the nonprofit space for decades, and we know how confusing it can be to get all this sorted out. So we’re breaking it down in a way that’s simple, clear, and based on real experience. No fluff, just the stuff you need to know.

What is a tax-exempt organization under section 501 of the Internal Revenue Code?

Let’s start with the basics. A tax-exempt organization is one that doesn’t have to pay federal income taxes on the money it brings in—so long as it follows certain rules. These kinds of organizations are usually set up to help the public in some way, whether through charity, education, community work, or other good causes.

Now, you’ll hear a lot about Section 501 of the Internal Revenue Code. That’s just the part of the law that covers which kinds of nonprofits can skip paying those taxes. Under this section, there are different types—like 501(c)(3), 501(c)(4), and others. Each one has its own rules and benefits.

The IRS created these categories to make sure organizations are really doing work that helps the public—not just using the nonprofit label for tax breaks. So while you don’t have to pay income taxes, you do have to follow the rules that come with your category.

Sound like a lot? It can be. But when you’ve got a clear understanding of where your nonprofit fits, everything gets easier—from filing paperwork to raising money the right way.

501(c)(3) organizations

When people think of nonprofits, they’re usually thinking of 501(c)(3) organizations. These are the groups that focus on things like helping people in need, supporting education, saving animals, preserving the environment—basically, work that’s meant to do good for the public.

If your nonprofit is a 501(c)(3), one of the biggest perks is that donations people give you are tax-deductible. That means someone can give money to your organization and write it off on their taxes. It’s a great way to encourage people to give more, especially bigger donors.

But with that benefit comes some rules. If you're a 501(c)(3), you can’t get involved in political campaigns or support a specific candidate. A little lobbying—trying to influence laws—is allowed, but it has to stay limited. The focus has to stay on your mission, not politics.

There are also different types of 501(c)(3)s. Most are called public charities, which get money from lots of donors. Others are private foundations, which are usually funded by one main source—like a family or a company.

If you're aiming to build trust with donors, apply for grants, or show you're serious about your cause, 501(c)(3) status can really help. It tells people you’re playing by the rules—and that their support will be handled responsibly.

501(c)(4) organizations

A 501(c)(4) organization is still a nonprofit, but it works a little differently than a 501(c)(3). These groups are set up to promote something called social welfare—basically, making life better for a community. Think neighborhood groups, advocacy organizations, or groups that push for policy changes that help people.

The big difference? 501(c)(4)s can be more active in politics. They’re allowed to lobby and even support or oppose candidates, as long as that’s not their only focus. This makes them a strong choice for organizations that want to speak up and push for change in a bigger, louder way.

But here’s the trade-off: donations to 501(c)(4)s are not tax-deductible. So while you can raise money, your donors won’t get a tax break for giving. That might matter to some supporters—especially bigger ones—but for others, the mission is what matters most.

501(c)(4)s give you more freedom to act, especially when it comes to voter registration, public policy, or talking about laws that affect your cause. If you’re building a movement or trying to influence how people think or vote, this might be the better fit.

Differences between 501(c)(3) and 501(c)(4) organizations

Now that you’ve got a handle on what each type does, let’s break down the main differences between 501(c)(3) and 501(c)(4) organizations. These two are often confused, but they have some key things that set them apart.

Purpose:

• 501(c)(3)s are built for charitable, educational, or religious work. Their mission has to serve the public good in a direct, non-political way.
• 501(c)(4)s focus on social welfare—they’re allowed to take on more public policy and advocacy work to help communities in broader ways.

Donations:

• 501(c)(3) donations are tax-deductible, which is a big plus for fundraising.
• 501(c)(4) donations are not tax-deductible, which can be a challenge depending on your audience.

Political activity:

• 501(c)(3)s must stay out of political campaigns entirely. They can do a little lobbying, but it has to stay small.
• 501(c)(4)s can do a lot more lobbying and political work, as long as their main purpose still fits the social welfare mission.

Funding sources:

• 501(c)(3)s often rely on grants and individual donors, especially because of the tax break.
• 501(c)(4)s may turn to membership fees or other income, since they can’t offer that same tax benefit.

Public perception:

• 501(c)(3) status often signals credibility and a strong public service mission.
• 501(c)(4)s are seen as more issue-driven or advocacy-focused, which can be a plus if that’s your goal.

If you’re trying to decide between the two, think about what kind of work you want to do—and how important political advocacy, fundraising, and public trust are to your mission.

Fundraising, charitable contributions, and tax deductibility

Let’s talk about money—specifically, how each type of nonprofit can raise it and what it means for your donors.

If your organization is a 501(c)(3), one of your biggest fundraising tools is that donations are tax-deductible. That means when someone gives to your nonprofit, they can write it off when they file their taxes. This is a big deal—especially for donors who give larger gifts or companies that want to support causes and get a little tax relief in return.

Because of this, 501(c)(3)s often attract foundations, corporate donors, and grantmakers, many of whom require tax-deductible status. It opens more doors and can give your fundraising strategy a serious boost.

Now, if you’re a 501(c)(4), your fundraising looks a little different. Donations aren’t tax-deductible, so you may lean more on membership fees, smaller grassroots donors, or people and organizations who care deeply about your mission—even without the tax break.

Also, 501(c)(4)s have more freedom to tie their fundraising to advocacy work and even political activity, which can bring in a different kind of supporter—someone who’s passionate about change and wants to back a bold mission.

So while both can raise money, the way they do it—and the kind of donors they attract—can look very different.

Political activity and lobbying: What’s allowed and what’s not

This is where things get a little tricky—and where the biggest difference between 501(c)(3)s and 501(c)(4)s really shows up.

If your organization is a 501(c)(3), the rules are super clear: you cannot support or oppose political candidates. That means no endorsing, donating to, or campaigning for anyone running for office. If you do, you risk losing your tax-exempt status.

You can do some lobbying—like pushing for a law that helps your cause—but it has to be a small part of what you do. The IRS doesn’t give an exact percentage, but the general rule is: keep it limited and focused on your mission.

Now, a 501(c)(4) is a whole different story. These organizations are allowed to lobby as much as they want. They can also get involved in political campaigns, as long as political work isn’t their main focus. It has to support their social welfare mission, not take over the whole operation.

So, if your work includes voter registration, pushing for policy change, or speaking out on hot issues, a 501(c)(4) gives you the space to do that. But if staying neutral and focused on public service is your goal, a 501(c)(3) may be a better fit.

Knowing what’s allowed keeps you out of trouble—and helps you focus your energy where it matters most.

Compliance, reporting, and IRS requirements

Running a nonprofit isn’t just about doing good work—you’ve also got to stay in good standing with the IRS. That means following some rules, keeping clean records, and filing the right forms at the right time.

If you’re starting a 501(c)(3), you’ll usually need to file Form 1023 (or 1023-EZ for smaller orgs) to apply for tax-exempt status. Once approved, you’ll also file an annual Form 990, which tells the IRS about your finances, activities, and leadership. Think of it like a yearly check-in that proves you’re staying on mission.

501(c)(4) groups file Form 1024 to apply, and also have to file an annual Form 990. One key difference? 501(c)(4)s might need to notify the IRS within 60 days of forming by filing Form 8976—a step many new groups miss.

Both types of organizations have to be transparent about how money is spent, who’s running the show, and how they’re serving their mission. But 501(c)(3)s often face stricter oversight, especially because donors get tax breaks for giving.

If your organization messes up a filing or uses money the wrong way, you could lose your status—and with it, the trust of your community. So staying organized and compliant isn’t just red tape—it’s how you keep doing the work you care about.

Can a nonprofit organization operate both a 501(c)(3) and a 501(c)(4)?

Yes—some nonprofits actually run both types of organizations side by side, and it can be a smart move if you want the benefits of both worlds. Here's how it works.

Your 501(c)(3) handles all the charitable, educational, and public-service work—things like programs, events, and direct services. It’s the part of your mission that qualifies for tax-deductible donations and is limited when it comes to politics.

Then, your 501(c)(4) takes care of the advocacy and lobbying. If your cause needs you to speak up about laws, rally your community, or support specific policies, this arm gives you the freedom to do it—without risking your 501(c)(3) status.

The catch? You’ll need to keep them completely separate. That means different bank accounts, boards (or at least meeting records), and careful tracking of money, staff time, and activities. It takes good organization and clear boundaries to stay compliant.

Plenty of well-known nonprofits do this—one arm runs programs and collects tax-deductible donations, while the other speaks out and fights for change. It’s more work, but if your mission needs both charity and advocacy, it can be a powerful combo.

When should you choose a 501(c)(3) vs a 501(c)(4)?

Choosing between a 501(c)(3) and a 501(c)(4) really comes down to what you want your nonprofit to do—and how you plan to raise support for it.

If your mission is focused on direct service, education, or charitable work, and you want to attract tax-deductible donations, then a 501(c)(3) is probably the better fit. It’s trusted, grant-friendly, and makes it easier to fundraise with individuals, businesses, and foundations.

But if your work leans more toward advocacy, community organizing, or influencing public policy, then a 501(c)(4)might be the right choice. It gives you the freedom to speak out, lobby, and even get involved in political campaigns—something a 501(c)(3) just can’t do.

Still not sure? Here’s a simple way to think about it:

• If your focus is on service, go with a 501(c)(3).
• If your focus is on change, consider a 501(c)(4).
• If you want to do both, you might need both—just be ready to manage them separately.

And remember, this decision isn’t just about legal structure—it’s about building the right foundation for your mission to grow. So take your time, ask questions, and don’t be afraid to reach out for help. You’re not alone in this.

Opportunities for growth with digital tools and donor engagement

Once you’ve chosen your nonprofit structure, the next big question is: how do you grow? In our experience, the organizations that really take off are the ones that make it easy for people to connect, give, and stay involved. And that’s where the right tools make a huge difference.

Whether you're a 501(c)(3) or a 501(c)(4), digital tools can help you save time, raise more, and build stronger relationships with your supporters. Think donation forms that actually work on mobile. Campaign pages that look professional. Systems that keep all your donor info in one place—without the spreadsheet chaos.

At Harness, we’ve helped nonprofits turn one-time donors into recurring supporters just by simplifying how they give and how you stay in touch. With features like SmartAsk™, personalized websites, two-way texting, and real-time reporting, you can stop guessing and start making smarter decisions every day.

And let’s be real—your time is valuable. When your fundraising platform is doing the heavy lifting behind the scenes, your team can focus on strategy, storytelling, and impact.

Choosing what’s right for your cause

By now, you’ve got a clearer picture of what sets 501(c)(3)s and 501(c)(4)s apart—and hopefully, which one makes the most sense for your mission. Whether you’re focused on education, direct service, or advocacy, the structure you choose will shape how you grow, how you raise funds, and how you stay compliant.

The truth is, there’s no one-size-fits-all answer. Some organizations stick with one path. Others build both arms to serve their mission from different angles. What matters most is that your structure supports your goals—not holds them back.

And you don’t have to figure it out alone. At Harness, we’re more than just a fundraising platform. We’ve helped nonprofits at every stage—from early setup to major growth moments—build the strategies and confidence to move forward. Whether you’re just starting or leveling up, we’re here to walk alongside you.

Frequently asked questions

Can a 501(c)(3) engage in political campaign activity?

No. 501(c)(3) organizations are not allowed to support or oppose political candidates. Doing so could put their tax-exempt status at risk.

Are donations to 501(c)(4) organizations tax-deductible?

Generally, no. Donations to 501(c)(4)s are not tax-deductible, which can affect how you approach fundraising.

Can a nonprofit change from a 501(c)(3) to a 501(c)(4)?

Not directly. You would need to start a new organization and apply for 501(c)(4) status separately. Each structure has its own IRS process and rules.

What is the difference between public charities and private foundations?

Public charities usually have broad public support and run their own programs. Private foundations are often funded by one source and focus more on making grants to others.

Do social welfare organizations have to disclose their donors?

In most cases, 501(c)(4)s do not have to publicly disclose their donors, unlike some political organizations or 501(c)(3)s with certain reporting requirements.

What’s the filing process like for each type of organization?

501(c)(3)s file Form 1023 or 1023-EZ, while 501(c)(4)s file Form 1024 and must also submit Form 8976 within 60 days of forming. Both file an annual Form 990 to stay compliant.