Donation Rules for 501c3 Churches to Follow in 2025

If you’re trying to decide if the 501(c)(3) status is right for your church, you’re in the right place! Whether you’re a pastor preparing to plant a 501(c)(3) church or a church leader on an established church’s finance team, we know you have questions. In this guide, we’ll go over everything you need to know about the IRC section 501(c)(3) rules for churches so you can decide if it’s the right tax exempt option for your nonprofit organization.

In this blog post, we’ll cover:

• Donation trends for churches
• What is a 501(c)(3) church?
• Do you have to file for 501(c)(3) status?
• 501(c)(3) basic rules for churches
• Pros and cons of 501(c)(3)

This post has been written to answer questions about 501(c)(3), offer an overview of the application process, and explore the benefits of tax exempt status. But this isn’t intended as professional financial advice or legal counsel. If you need help filing a 501(c)(3) application or have other IRS regulations questions, it’s best to get advice from a tax expert or directly from the IRS.

Donation Trends

It’s no surprise that Americans give generously—it’s estimated that they donate over $50 billion every year to charitable organizations and churches across the United States! And with those generous donations, religious nonprofits nationwide can keep their doors open, reach out to their communities, hire staff, and maintain their physical church building. That’s why monitoring (and increasing) donations is crucial for your ministry’s health!

When it comes to looking at the numbers for individual churches, it can be hard to pinpoint exactly how much they receive in donations. According to Health Research Funding, Protestant church attendees typically donate around $17 a week or around $884 a year. But every church is unique. The size, location, and mission of each religious organization affect who gives, how much they give, and how often.

A 501(c)(3) tax exempt status can influence your church’s number of donations, and the growth of your ministry as a whole. But what exactly does a 501(c)(3) organization actually entail? And is it the right move for your church? Let’s get into it.

What is a 501(c)(3) church?

501(c)(3) is a federal tax exempt status from the IRS that exempts a qualified nonprofit from paying federal income tax. Churches with the 501(c)(3) designation don’t have to pay taxes on donations or other sources of income. And their donors can deduct their gifts to the church on their taxes, ​​otherwise known as tax deductible contributions. 

Do you have to apply for 501(c)(3) status?

Short answer: yes. 

The IRS already considers most churches and religious organizations to be exempt organizations. Check out the IRS’s Publication 557, which says, “a church, its integrated auxiliaries, or a convention or association of churches isn’t required to file Form 1023 to be exempt from federal income tax or to receive tax-deductible contributions.”

But, the official 501(c)(3) status (and determination letter from the IRS that makes it official) isn’t automatically given to all churches with a religious purpose. To claim full 501(c)(3) status, you have to apply through the IRS. 

Any time people have to deal with the IRS, it can feel intimidating and confusing. But they’ve got a guide, Tax Guide for Churches and Religious Organizations, to help you navigate the whole process.

The Application

If your church isn’t organized as a trust, a corporation, or an association, or doesn’t have an EIN, you’ll need to get those before you apply.

You’ll complete Form 1023 or 1023-EZ, which includes detailed information about your religious purposes, financials, and activities. It can span over 100 pages with attachments—but approval grants your exempt status and opens the door for tax exemption.

The application and approval process can take several months, but your church can enjoy federal income tax exemption once your application is approved (and even while it’s pending).

Here are some more resources straight from the IRS to use as you navigate the 501(c)(3) application process.

• Tax Guide for Churches & Religious Organizations
• Requirements for 501(c)(3)
• Definition of church by the IRS
• Organizational Test for 501(c)(3)
• Form 1023 to Apply for 501(c)(3) status
• The Exempt Organizations Select Check Tool
• Public Disclosure and Availability of Exempt Organizations Returns and Applications 
• An online course created by the IRS to help you apply

But before you start working on that application, there are some responsibilities you need to know about as a 501(c)(3) organization.

501(c)(3) rules to maintain tax exempt status for churches

Ready for some good news? After all the work of organizing and applying, once your 501(c)(3) status is approved, it doesn’t expire! But there are a few steps you need to take to maintain your status (just not another 100-page application). 

Let’s review the IRS’s requirements so you know exactly what to do to protect your ministry from mishaps and penalties. 

1. Your nonprofit can only be run for religious purposes.

2. It can’t primarily focus its activities on lobbying or political efforts.

3. Your organization can’t engage in illegal activities.

4. It can’t primarily benefit a private interest or individual.

5. You can’t generate too much income from a business unrelated to your nonprofit.

6. You need to file and report your income annually.

Advantages and Disadvantages of 501(c)(3)

Now that we’ve waded through the application process and the requirements to maintain a 501(c)(3) status, it’s time to weigh the pros and cons for your ministry.

Advantages

• Tax exemption reduces operating costs, allowing you to reinvest in ministry.
• Boosts credibility with donors and your congregation.
• Enables charitable organizations to accept tax-deductible contributions.
• Saves on mailing costs, sales tax exemption, and tech discounts (like from Amazon or Microsoft).
• Opens up grant opportunities—such as Google Ad Grants offering $10,000/month for religious nonprofits.

Builds credibility

501(c)(3) status gives donors and supporters increased confidence that the nonprofit organization is reputable and trustworthy- making people more likely to donate to the cause. 

Makes contributions tax-deductible

Donors want to give to a religious organization that is trustworthy and doing good work. But it doesn’t hurt when they also get to write off their donations on their taxes.

Brings more saving opportunities

Beyond saving money on income tax, 501(c)(3) churches can save on other expenses, from the US Postal Service and state sales tax to private brands ranging from Amazon to Microsoft.

Unlocks access to grants

As a 501(c)(3) church, you can apply for grants to help your cause. A popular grant for churches to claim is the Google Ad Grants, which offers up to $10,000 each month in ad spend (for free!!) for churches to create highly targeted search ads. 

Disadvantages

• The application can cost between $275–$600, with additional fees if using a professional.
• Ongoing paperwork, like the annual Form 990, is still required.
• Exempt organizations must publicly disclose financials, opening the door to scrutiny.
• Stricter IRS regulations around political activity may make church leaders feel limited in what they can say or do.

Application Cost

There is a cost to become a 501(c)(3) church. Expect to pay somewhere between $275-600 to the IRS for the application fee, but you could easily add on $2,000 in fees by having an expert help you organize and file the application. 

Piles of paperwork

Unfortunately, being exempt from paying federal income tax doesn’t mean that your church is exempt from filing tax returns. You’ll need to file Form 990 with the IRS annually to report the church’s income. Between the requirement of filing to keep your 501(c)(3) status and the chance of an audit at any time, it’s essential to keep all those documents up to date. 

Scrutiny on reports

Once your organization has established that it’s not-for-profit, your financial information becomes public. Anyone can download a copy of your State and Federal filings and see where exactly the money is being spent. While transparency is great at establishing trust with donors, it can also lead to scrutiny if people feel you’re not spending your money as you should. 

Fear of violating terms

Churches may end up second-guessing their choices or feeling like they can’t say exactly what they want to out of fear of losing their 501(c)(3) status. With the strict rules in place, especially around politics and activism, a church could risk losing their exemption status.

Manage and track church finances easily

While this post has been written to give you an overview of the process and benefits, we know we’re not the experts in 501(c)(3) exemptions. The IRS and tax pros are. Our specialty is creating tools for the Church, like secure online giving for churches. 

We’re here to equip busy church administrators with tools that empower them with donor development, easily integrate with their current systems, streamline donor communication, and simplify reporting to your leaders. Every step of the giving journey is backed by top-notch PCI Level 1 compliance, so you know your donors’ data is safe and secure. 

Want to learn more? Schedule a call with one of our product experts!

Sources

https://www.irs.gov/charities-non-profits/churches-integrated-auxiliaries-and-conventions-or-associations-of-churches 

https://www.irs.gov/charities-non-profits/churches-religious-organizations

https://www.nolo.com/legal-encyclopedia/are-churches-always-exempt.html  

https://www.financestrategists.com/tax/501c3/501c3-church/