Nonprofit Sector

The Internal Revenue Service (IRS) classifies nonprofits with certain codes based on their purpose. In general, tax-exempt organizations are classified as 501(c) organizations. The purposes that nonprofits have vary widely. Their mission may be charitable, religious, educational, scientific, literary, testing for public safety, fostering international or national amateur sports competition, or the prevention of cruelty to animals or children. The IRS lists 26 different types of nonprofit organizations.

A charitable organization is a 501(c)(3) organization, and is defined as “charitable” because its purpose benefits the broad public interest, and not just its members. Nonprofits may be incorporated or unincorporated, with the difference being that the IRS will not grant 501(c)(3) status to unincorporated nonprofits. In addition, donations to 501(c)(3) organizations are tax deductible. As the Independent Sector, a resource group for the nonprofit industry, describes it, a public charity receives “at least one-third of its annual income from the public, a unit of government, or an organization formed to raise money for a special school, hospital, governmental unit, or publicly supported charity.” Private foundations, on the other hand, are supported by contributions from an individual, family, or corporation.

The federal government encourages nonprofit organizations in their mission by making them tax-exempt, which helps nonprofits to dedicate their funds to the work needed toward their mission. In 2020, there were more than 1.5 million tax-exempt organizations in America, an increase since 2003, of which 1.2 million were public charities, private foundations, and religious organizations. Public charities have grown at a faster rate than all other nonprofit organizations. 

Most nonprofits are structured similarly to for-profit organizations. They have officers of the corporation, a board of directors, by-laws, and annual meetings. Their staff members include executive directors, membership directors, program officers, communications and public relations directors, human resource managers, development and grant officers, financial managers, I.T. staff, and associates and assistants.

Hard as it may be to believe, the nonprofit sector contributes enormously to the American economy, providing 5.4 percent of the country's entire gross domestic product (GDP), the equivalent of about $985.4 billion of output, according to the National Center for Charitable Statistics. In 2018, nonprofit organizations employed more than 12 million people, which was approximately 10 percent of America's workforce.

The nonprofit sector provides employment in 10 broad sectors, which are arts, culture, and humanities; education; environment and animals; health; human services; international and foreign affairs; mutual membership benefit, such as professional associations and lobbying groups; public or societal benefit, such as foundations and grant-making groups; religion related; and groups that are yet to be classified. The jobs in nonprofit organizations vary depending on the mission of the organization. For instance, education directors and curators work for museums and other educational organizations. Social workers and health policy analysts work for health-related nonprofits. Conservationists and park rangers work for national parks and environmental groups. Program directors and communications managers work for a variety of nonprofits, including foundations and grant-making groups. And there are also public interest lawyers, grassroots activists, human rights activists, community developers, youth organizers, and many others in the field.