501c3 vs 501c4 for Church Organizations: What are the Differences?

So when a church or religious organization is looking at tax-exempt status, the 2 main possibilities in the U.S. are 501(c)(3) and 501(c)(4) designations. Both allow for tax-exempt benefits; however, the main differences lie in the activities allowed, involvement in politics, and the benefits to donors. 

Let’s break down these 2 types, which should help you determine the best option for your church.

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

Most churches apply for 501(c) (3) status because it aligns nicely with most religious missions involving worship, community support, and charity.

• Purpose and Benefits: A 501(c)(3) church exists for religious, charitable, or educational purposes. The activities of such organizations are strictly non-profit, for the furtherance of public benefit. They can also accept tax-deductible donations, allowing greater contributions from donors.
• Common Examples: This would include most traditional churches, ministries, and religious schools.
• Requirements: To maintain its 501(c)(3) status, a church must avoid endorsing or opposing political candidates and can only lobby on an “insubstantial” level, which means it can’t be the primary activity.

What is a 501(c)(4) Organization for Churches?

While less common for churches or other religious organizations, 501(c)(4) status is applicable if the activities primarily involve social advocacy or community welfare work.

• Purpose and Benefits: Under this designation, a 501(c)(4) organization operates to promote the social welfare and common good of the community. Unlike 501(c)(3) organizations, any donation to a 501(c)(4) organization is considered taxable. On the other hand, it gives the organization more freedom in terms of lobbying politically and in its advocacy.
• Common Examples: Faith-based organizations, if they desire to engage further in the promotion and advancement of social justice or the reforming of a community and be more hands-on in political advocacy, may seek status under 501(c)(4).
• Requirements: Under 501(c)(4), some political activities are allowed, such as the endorsement of candidates or lobbying for policy change, if it aligns with the mission and is not the primary focus of the group.

501(c)(3) vs. 501(c)(4) Status for Churches: Key Differences

• Mission Focus: While 501(c)(3) churches are designed to serve traditional religious and charitable purposes, 501(c)(4) organizations are focused on broader social welfare and thus are ideal for advocacy groups.
• Donor Tax Deductions: Contributions to 501(c)(3) churches are deductible; contributions to organizations under 501(c)(4) are generally taxable.
• Political Activity: 501(c)(3) churches may not endorse political candidates and may only lobby a limited amount. 501(c)(4) organizations, however, can participate in a broader range of political activities; therefore, if the church has strong goals for policy change or social justice, then it might seek this designation.

How Political and Lobbying Restrictions Differ

Another critical difference between 501(c)(3) and 501(c)(4) with respect to churches involves the degree of permissible political activity.

• 501(c)(3) Political Restrictions: Churches receiving 501(c)(3) status are not allowed to endorse political candidates and must keep lobbying activity at a minimum, allowing them to focus on religious or educational missions without any political persuasion.
• 501(c)(4) Political Flexibility: Whereas 501(c)(3) organizations are greatly hampered in terms of political lobbying, their 501(c)(4) brethren can lobby and-within limits-even endorse candidates for office consistent with its social welfare purposes.

Tax Deductibility for Church Donations

It is often the distinction between whether or not an organization offers tax-deductible donations that can determine a church’s designation.

• 501(c)(3) Church Donations: Contributions to a 501(c)(3) church are deductible; thus, this could be an incentive for the donor to make a larger gift.
• 501(c)(4) Church Donations: Donations to a 501(c)(4) organization generally are not tax-deductible, and this may perhaps deter fundraising efforts for churches that depend on donations.

Choosing the Right Designation for Your Church

• 501(c)(3) Benefits: Churches that only provide worship, charitable work, and/or religious education favor getting 501(c)(3) because of tax-deductible donations, their capability to get grants, and also be recognized for credibility as a ‘traditional’ nonprofit.
• 501(c)(4) Benefits: Churches or religious groups based on social reform, advocacy, or community welfare may want to consider 501(c)(4) status, as it gives a great deal more leeway in terms of political involvement and the ability to lobby.

Examples of 501(c)(3) and 501(c)(4) Church Organizations

How each of these designations works in practice will help you understand which best fits your church:

• 501(c)(3) organizations: They include traditional churches like the Roman Catholic Diocese of Brooklyn, the Southern Baptist Convention, and The Church of Jesus Christ of Latter-day Saints; mission-based ministries such as Samaritan’s Purse, World Vision, and Compassion International; and religious schools like Notre Dame University and Brigham Young University. These organizations are exempt from federal income tax and can receive tax-deductible donations.
• 501(c)(4) organizations: They are primarily focused on social welfare and advocacy. Examples include interfaith social justice networks like the Interfaith Center of New York, PICO National Network, and Faith in Public Life. These organizations can engage in lobbying and political activities, but they cannot receive tax-deductible donations.

While there are differences between 501(c)(3) vs. 501(c)(4) status, each carries certain tax benefits for churches and religious groups, offering different levels of flexibility regarding the political involvement of the groups and tax benefits for donors. Which one, then, will be a more appropriate designation will depend upon your church’s mission and how much advocacy or political involvement will ensue with your community.