Table of contents
What Is the 33% Rule for Nonprofits? (And Why It Matters)
Meta Title: What Is the 33% Rule for Nonprofits? (Explained Simply)
Meta Description: Learn what the 33% rule means for nonprofits, why it's important for maintaining public charity status, and how to track it automatically using Actually Finance.
What Is the 33% Rule for Nonprofits?
The 33% rule, also called the public support test, determines whether a nonprofit organization qualifies as a public charity rather than a private foundation.
According to the IRS Public Support Test Guide, a nonprofit must receive at least one-third (33⅓%) of its total financial support from public sources.
That means most of your organization's funding should come from: - Individual donors - Other public charities - Government grants or contracts - Corporations and community foundations
If more than two-thirds of your funding comes from a small number of private donors, your nonprofit may risk being reclassified as a private foundation, which comes with stricter reporting requirements and excise taxes.
Why the 33% Rule Exists
The rule ensures transparency and broad public engagement. The IRS wants to see that nonprofits truly serve the public good — not just a few wealthy benefactors.
Failing to meet this rule for multiple years could cause your organization to lose its public charity status. That means: - Reduced donor confidence - Increased compliance complexity - Higher administrative burden (e.g., annual private foundation excise tax filings)
Maintaining a diverse funding base isn't just a legal safeguard — it's also a sign of financial health and mission alignment.
How to Calculate Your Public Support Percentage
You can calculate your public support ratio using the formula below (simplified for clarity):
Public Support % = (Public Contributions ÷ Total Support) × 100
Where: - Public Contributions = donations, grants, and revenue from general public sources - Total Support = all contributions and income (including investment income, membership dues, and earned revenue)
The IRS typically averages these figures over a five-year period to determine eligibility.
Common Mistakes Nonprofits Make
• Over-reliance on a single donor or grant: Even if a donor gives multiple small gifts, the IRS counts them together.
• Ignoring in-kind donations: Non-cash gifts still count as public support if properly documented.
• Not tracking restricted vs. unrestricted funds: Misclassifying restricted grants can skew your public support ratio.
To avoid these issues, keep a clean separation between funding sources — especially when grants or donations come with usage restrictions.
How to Track the 33% Rule Automatically
Manual tracking in spreadsheets is prone to error. Instead, use nonprofit-focused budgeting software that handles funding source tracking automatically.
Actually Finance helps nonprofits: - Tag every income source (grant, donation, membership, etc.) - Track restricted vs. unrestricted funds - Automatically generate reports for IRS compliance and board meetings
This makes it simple to see whether your organization is meeting the 33% threshold — without crunching numbers in Excel.
For a step-by-step guide to setting up your financial tracking in QuickBooks, see our complete guide to budgeting for nonprofits in QuickBooks.
What to Do If You're Below the 33% Threshold
If your nonprofit falls short of the 33⅓% rule, don't panic. The IRS also offers an alternative facts-and-circumstances test, allowing some flexibility if you can prove: - Broad public support and engagement (e.g., volunteers, events, outreach) - A pattern of diverse funding, even if recent years dipped below the threshold - Alignment with charitable purpose and community benefit
Still, it's best to maintain diverse revenue streams and regularly review your ratios using tools like Actually Finance.
The Bottom Line
The 33% rule isn't just a bureaucratic hurdle — it's a safeguard for transparency and accountability. It ensures your organization is truly rooted in community support.
By monitoring your revenue mix proactively, you can maintain compliance, build donor trust, and show measurable impact.
To make compliance simple, automate your tracking with Actually Finance — purpose-built for nonprofit budgeting, grants, and fund tracking.
For a simple budgeting framework to organize your nonprofit's spending, check out our guide on the 50/30/20 budget rule for nonprofits.
Want a deeper dive into nonprofit budgeting? Check out our article here Nonprofit Budgeting Template.
Frequently Asked Questions About the 33% Rule
What happens if a nonprofit fails the 33% public support test?
If a nonprofit fails the 33% test, it may be reclassified as a private foundation by the IRS. This comes with stricter regulations, excise taxes, and reduced donor confidence. However, the IRS offers an alternative facts-and-circumstances test that may still allow public charity status if you can demonstrate broad community support.
How often does the IRS check the 33% rule?
The IRS evaluates the public support test using a rolling five-year average. This is reviewed when the nonprofit files its annual Form 990. The five-year window means a single bad year won't automatically disqualify your organization.
Do government grants count as public support for the 33% test?
Yes, government grants generally count as public support, including federal, state, and local government grants. However, unusually large grants from a single government source may be subject to special rules that limit how much counts toward your public support ratio.
Can in-kind donations help meet the 33% threshold?
Yes, properly documented in-kind donations — such as donated goods, services, or use of facilities — count as public support and can help your organization meet the 33% threshold. Be sure to document fair market value and keep detailed records for IRS compliance.
David Cristello
.svg)
About the Author
David Cristello is the Co-Founder of Actually Finance. He's been an entrepreneur in the accounting and nonprofit space for over 10 years, previously building a company that made the Inc5000 list
.png)
.png)
.png)
