Should Your Church Apply for 501(c)(3) Tax-Exempt Status?

Should you file for 501(c)3 status?

If you’re starting a church and wondering whether you should file for tax-exempt status, you’re not alone. It’s one of the most common questions I get from new nonprofit leaders—especially those planting churches. And it’s a good one.

Because while churches are automatically considered tax-exempt under federal law, applying for official 501(c)(3) status still comes with real pros and cons.

In this article, I’ll walk you through what you need to know—so you can make the right decision for your ministry.

First, a Quick Primer

Because churches are one of the oldest organizations in the United States, the IRS treats them a bit differently. 

If your church meets the basic IRS definition of a church— including the 5 key requirements of regular services, a distinct legal existence, a recognized creed and form of worship—you already qualify as tax-exempt under section 501(c)(3), without having to apply.

That said, there are some very good reasons churches still go through the formal 501(c)(3) application process, and a few drawbacks to consider.

Let’s start with the benefits.

Why a Church Might Want to Apply Anyway

When you apply for 501(c)(3) status, you’re asking the IRS to send you a formal letter—called a “determination letter”—stating that your church is officially recognized as a tax-exempt organization.

That letter can significantly benefit your church.

1. It builds donor trust.

This is a big one.

Donors are far more likely to trust your church—and donate large sums of money—when they can request your official nonprofit determination letter.

In fact, many donors’ accountants will require it. If you’re hoping to raise gifts of $1,000, $10,000, or even $100,000, having that letter on file becomes essential.

Without it, you may struggle to close major gifts—especially from outside your immediate community.

2. It opens the door to grants.

If your church’s long-term vision includes grant funding, a 501(c)3 letter will be a requirement. 

The vast majority of foundations and government agencies will ask for your IRS determination letter as part of the grant application process, as well as documents, such as your latest form 990 filing, that can only be provided if you register with the IRS. 

Especially if you plan to engage in charitable programming in your community – including feeding the homeless, creating a food pantry, or opening a school, this step may be a necessary one.

3. It unlocks exclusive discounts and services.

This third, and perhaps most important, advantage of formally applying for 501(c)3 status is the world of support it can open up for your nonprofit. Corporations primarily give to 501(c)3 recognized entities, and there are a lot of benefits this provides, up to and including:

• $10,000/month in free ad credits from Google (Ad Grants)

• Free design tools like Canva Pro

• Project management software like Monday.com

• And thousands of other tools, platforms, and services—many of which are free or deeply discounted for nonprofits that I covered in a previous article.

If your church plans to scale operations, build an online presence, or run community programs, these perks can save you thousands each year.

What Are the Downsides?

Despite all those benefits, applying for 501(c)(3) status as a church comes with some key restrictions.

Let’s break down the three major ones.

1. You’re subject to private inurement rules.

Private inurement means that no part of your church’s income or assets can unfairly benefit insiders—including pastors, board members, or their families.

You’ll need to avoid conflicts of interest, especially when it comes to financial transactions, salaries, or contracts. 

This doesn’t mean you can’t pay your staff, but it does mean your church will need to follow formal compensation practices, avoid insider deals, and document your decisions properly.

2. You’re restricted in lobbying and legislative advocacy.

Churches that hold 501(c)(3) status can only engage in an “insubstantial” amount of lobbying—typically interpreted as no more than 2%–5% of their total activities.

If your church is deeply involved in pushing legislation, lobbying elected officials, or advocating for specific policy changes, this could become a serious constraint.

3. You cannot endorse or oppose political candidates.

This is an important distinction with 501c3 status, as a lot of pastors and church leaders have been concerned about the lack of free speech in the pulpit. 

If your church becomes a 501(c)(3), you are prohibited from supporting or opposing political candidates in any way.

That includes:

• Inviting a candidate to speak in a way that promotes their campaign

• Giving a candidate free access to your church’s audience, facilities, or platforms

• Publishing voter guides that favor or disfavor candidates

Keeping out of politics might be your best bet as a church, but if it isn’t and your ministry intends to regularly engage in political discourse, this is something to keep in mind. 

What’s the Right Call for Your Church?

There’s no one-size-fits-all answer.

If your church plans to fundraise at scale, pursue grant funding, and take advantage of nonprofit tools and discounts, then applying for 501(c)(3) status is probably the smart move.

Applying for 501(c) status can open up larger donations, give you access to grants, and record you as a legitimate charity in the eyes of the public –  giving you access to thousands of corporate discounts, giveaways, and dollars of support. 

But if your church is heavily involved in political activity, or if you want to preserve the full range of freedom that comes with informal IRS recognition, you may choose to hold off—for now.

Want Help Filing?

If you’re leaning toward applying, I’ve got a resource for you.

It’s called The Exempt List for Churches—a simple checklist that walks you through exactly what you need to do to get your 501(c)(3) status as a church.

Just contact us and I’ll send it your way. 

And if you have questions about the process or whether it’s the right step for your ministry, feel free to reach out, we’ll help you take the right step towards planting your seeds.