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Establishing a 501(c)(5) nonprofit organization is a powerful way to drive positive change and support labor, agricultural, and horticultural workers. Before you get started, its important to know what makes organizations exempt and how to file correctly under the Internal Revenue Code.
With many types of nonprofits eligible for tax exempt status, 501(c)(5) helps your organization direct more resources toward improving working conditions, product quality, and operational efficiency in your field.
This comprehensive guide explores the key aspects of 501(c)(5) organizations and the eligibility requirements to qualify for the status. Whether you're looking to start a labor union, agricultural trade group, or horticultural society, read on to learn how to successfully register as a 501(c)(5) and advance your mission.
Section 501(c)(5) applies to nonprofit labor and agricultural or horticultural organizations. The IRS status exempts these organizations from all federal income taxes on income related to their exempt purpose.
The primary purpose of 501(c)(5) nonprofit organizations is to improve the working conditions of workers and practitioners in agricultural, horticultural, or labor fields in various ways.
A 501(c)(5) can be a game-changer for organizations looking to amplify their impact and strengthen their community.
Benefits:
Tax-exempt status means more resources go directly toward your mission instead of taxes.
Unified advocacy empowers your members to speak with one strong, collective voice.
Community building creates a network of support and collaboration for your members.
Mission-focused operations allow your organization to prioritize long-term impact over financial burdens.
Eligibility for grants and other funding opportunities designed for nonprofit organizations.
501(c)(5) Legal and Tax Status
The IRS exempts 501(c)(5) organizations from paying federal income tax, with the exception of any funds used for political and lobbying activities.
They may also be required to pay tax on unrelated business income. This means revenue is earned from regular activities related to trade and business that are not aligned with exempt purposes.
Some examples of what tax exempt status organizations may still pay federal income tax on include renting property, advertising, and payments from sponsors in return for certain benefits.
Are donations to a 501c5 tax-deductable?
Donations to a 501(c)(5) aren’t tax-deductible because these organizations focus on member benefits and advocacy rather than public charitable work like a 501(c)(3) or other tax exempt statuses. But that doesn’t mean your support doesn’t make a huge difference—it directly fuels their mission to create meaningful change for their members and industries.
What is a 501c5 tax code?
A 501c5 tax code gives labor unions, agricultural organizations, and similar groups their nonprofit status. It’s designed for organizations that focus on improving conditions for workers or specific industries through advocacy, education, and collective support. Think of it as the backbone for groups that unite people to make a difference in their fields!
501(c)(5) vs 501(c)(3) Tax Exempt Status: What is the Difference?
Unlike 501(c)(3) nonprofit organizations, individual contributions to 501(c)(5) are not tax deductible as charitable contributions. They can qualify for tax exemption if they count as "ordinary and necessary" business expenses, such as labor union dues.
There might be agricultural organizations that offer educational benefits, in such a case, they will qualify for both 501(c)(5) and 501(c)(3) status.
Most nonprofits in this position prefer to move ahead with the 501(c)(3) designation because individual contributions to them are tax-exempt. This designation even helps to attract more charitable contributions, as supporters prefer to contribute to 501(c)(3) for tax relief.
Types of Organizations Exempted Under Section 501(c)(5)
The IRS (Internal Revenue Service) Section 501 (c)(3) grants federal tax exemption to only three kinds of organizations: labor, agricultural, and horticultural.
1. Labor Nonprofit Organizations
These organizations are formed by workers, such as electrical workers, factory workers, or professionals like teachers in a particular trade or industry. They gain tax exemption because of the nature of their work which we’ll dive deeper into below.
Labor organizations collectively bargain with employers to secure improved working conditions, better earnings, or other benefits. These benefits include accidents, lockout, strikes, sickness, and death.
Labor groups can join unions, committees, or councils and get 501(c)(5) tax-exempt status.
2. Agriculture Nonprofit Organizations
An agricultural organization is a tax-exempt nonprofit that focuses on raising livestock, fish, or forests or growing and harvesting crops.
The IRS Section 501(c)(5) applies tax exempt status to organizations conducting the following agricultural activities:
Land cultivation includes maintaining soil quality, harvesting crops, and planting seeds.
Fishing and harvesting other aquatic resources.
Feeding, managing, and raising livestock, including domestic farm animals like cattle, hogs, chickens, and animals raised in captivity for their pelts or fur.
3. Horticultural Organizations
Horticultural organizations are a subset of agricultural organizations that focus specifically on cultivating plants, such as fruits, vegetables, flowers, and ornamental plants.
The key activities of horticultural organizations include:
Growing and harvesting fruits, vegetables, nuts, and other food crops.
Cultivating flowers, trees, and ornamental plants for gardening and landscaping.
Researching to improve plant varieties, growing techniques, and pest management.
Providing education and resources to farmers, gardeners, and the public on horticultural best practices.
To qualify for 501(c)(5) tax exempt status, a horticultural organization must focus on improving the conditions of those working in the field, enhancing the quality of horticultural products, or increasing the efficiency of operations. Its main purpose cannot be generating profits for individual members.
Some examples of 501(c)(5) horticultural organizations include trade associations for fruit growers and professional societies for florists and nursery operators.
Eligibility Criteria to Qualify for 501(c)(5) Tax Exempt Status
Any nonprofit organization working in labor, agriculture, or horticultural must apply for 501(c)(5) status to receive tax exemption.
Criteria for exemption from certain federal income taxes
No part of the organization's net earnings should be pocketed or inure to the benefit of any member.
The organization's goals should be to better the conditions of people working in agriculture, horticulture, or labor, Improve the quality of products in these fields, and develop a higher degree of efficiency in these occupations.
Labor organizations can provide direct benefits to members, but their primary purpose must be to negotiate better working conditions, not generate profits.
Familiarize yourself with the IRS requirements, eligibility criteria, and legal obligations for obtaining and maintaining 501(c)(5) status. Understand how these organizations function, the activities they engage in, and the potential challenges they face.
This foundational knowledge will help you make informed decisions when establishing and running your organization. You'll be better equipped to ensure compliance and increase your chances of successfully achieving your mission.
Step 2. Build a Strong Foundation
Once you clarify that you will qualify for 501(c)(5) nonprofit status, it's time to lay the foundation of your organization.
Organizations are formed at the state level, so you need to find out the specific procedure for forming a nonprofit in the state you're based in. The steps can vary by state but will generally include the following elements:
Step 3. Secure an Employer Identification Number (EIN)
An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is required by the IRS to identify your nonprofit organization for tax purposes. You'll need an EIN when filing Form 1024 for tax exempt status.
To obtain an EIN, complete Form SS-4 (Application for Employer Identification Number) on the IRS website. Provide the following information:
Name and personal taxpayer identification number of your organization's principal officer
Type of entity (nonprofit)
Reason for applying
Principal business activity
Organization's start or acquisition date
Once submitted, the IRS will issue your EIN, which you'll use for various tax-related documents and filings.
Step 4. File for 501(c)(5) Tax Exemption
The IRS has different forms for different nonprofit organizations applying for tax exempt status. As a 501(c)(5) nonprofit, you must complete Form 1024.
Start by reviewing the instructions and collecting all the necessary documents or information. The 22-page form is long, so carefully fill out the details to avoid any problems and get your application processed quickly.
To maintain your 501(c)(5) tax exempt status, you must follow IRS rules and file Form 990 annually.
Form 990 reports your organization's financial information and activities, demonstrating compliance with tax-exempt requirements. Review the different versions of Form 990 to determine which applies to your organization based on its gross receipts and total assets.
Timely filing of the appropriate Form 990 is essential to maintain your tax exempt status and avoid penalties.
The Orange County Labor Federation exemplifies the impactful work of labor nonprofits. At their 24th Annual Solidarity Awards Gala, they will celebrate individuals who have contributed to the lives of working families in Orange County.
Using Zeffy's ticketing platform, the Orange County Labor Federation offers various sponsorship levels and ticket options, streamlining the process for supporters to contribute to their cause.
The Orange County Labor Federation showcases how 501(c)(5) organizations can effectively engage their community and raise funds to further their mission.
Forming a 501(c)(5) organization is a powerful way to effect positive change in labor, agriculture, or horticulture. By researching requirements, following the application process, and maintaining compliance, you can establish a thriving nonprofit that improves conditions and efficiency in your field.
IRS 501c5 organizations with tax exemption can partake in lobbying activities and political campaigns to advance their mission and the interests of their members.
Your organization can't make politics or lobby its main purpose - but rather a way for you to support its members and achieve your original mission.
It's important to note that political expenses are not tax-deductible. If your nonprofit wishes to lobby, you must either pay a tax on the sum of its cost or inform members of the percentage of membership dues that support lobbying.
The key differences between 501(c)(3) and 501(c)(5) tax exempt status under the Internal Revenue Code are:
501(c)(3)s include tax exemption for charitable, religious, and educational organizations, while 501(c)(5)s are labor, agricultural, and horticultural organizations.
Charitable donations to 501(c)(3)s are tax-deductible; charitable donations to 501c5s are not.
501(c)(3)s with tax exempt status are prohibited from political activities, while 501c5s can engage in them to a limited extent to support their mission.
501(c) is a designation under the Internal Revenue Code (IRC) that confers federal tax exempt status on nonprofits. It identifies and lists down nonprofit organizations exempted from paying taxes. The different types of 501(c) includes:
Charitable organizations
Churches/religious entities
An agricultural, horticultural, or labor organization
Fraternal beneficiary societies
Private Foundations
Credit Union with no capital stock organized
Voluntary Employees Beneficiary Association (VEBA)
Cemetery companies are owned and operated for the benefit of their members
The only 100% free fundraising platform for nonprofits
501(c)(4) organizations promote social welfare and can engage in political activities. Learn about 501(c)(4) qualifications, characteristics, and the application process.
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