What Is the 33 Percent Rule for Nonprofits?

The “33 percent rule” is the IRS public support test that keeps most 501(c)(3) organizations classified as public charities rather than private foundations. Passing the test means that at least one-third (33 ⅓ percent) of a nonprofit’s total support over a rolling five-year period must come from the general public or government. Under the 509(a)(1) test, each donor’s gifts count toward that share only up to 2% of total support for the period, a limit called the 2% limitation. One short year does not end public charity status: a charity that fails both public support tests two years in a row is treated as a private foundation from the second year.

How to calculate your public support percentage

These steps follow Part II of Schedule A, the 509(a)(1) test. The table above shows how 509(a)(2) differs.

1. Use the current tax year and the four years before it. Schedule A of Form 990 has a column for each year.
2. Add total support: gifts, grants, and contributions, plus investment income, net income from unrelated business, and other income. Leave out program revenue and capital gains.
3. Add public support: the same gifts and grants, minus the amount by which any one donor’s five-year total exceeds 2% of total support. Government grants, and grants from charities that are themselves publicly supported under 170(b)(1)(A)(vi), count in full.
4. Divide public support by total support.
5. At 33⅓% or more, you pass for this year and the next. Between 10% and 33⅓%, you can still pass the facts-and-circumstances test, explained in Part VI of Schedule A.

For context beyond the test, the full report from the free Peer Benchmark Lookup shows how your contribution share of revenue compares with nonprofits your size, using Form 990 data. Our nonprofit fundraising benchmarks show the medians by size and mission. Neither calculates the public support test itself.

What is the 2% limitation?

The 2% limitation is the IRS rule that each donor’s gifts count as public support only up to 2% of a charity’s total support for the five-year period, while the full gift stays in total support. Gifts from a donor’s spouse, certain other family members, and companies the family controls are added together (26 CFR 1.170A-9(f)(6)).

The limit does not apply to government grants, or to grants from other charities that qualify as publicly supported under section 170(b)(1)(A)(vi), unless a donor earmarked the money for your charity. Private foundation grants are capped like any other donor’s.

Take a charity with $2 million in total support over five years. Two percent of that is $40,000.

Now suppose an outside donor also gave a one-time $3 million gift in the same five years. Total support rises to $5 million, and the cap rises to $100,000. Public support becomes $1,550,000, or 31%, below one-third. If that gift qualified as an unusual grant, it would drop out of both numbers, and the charity would be back at 66.5%. The IRS’s own example in the regulations works the same way: a charity with $600,000 in five-year support counts six large donors at $12,000 each and passes at 33.67% (26 CFR 1.170A-9(f)(9)).

How much funding can a nonprofit get from one source?

There is no legal limit on how much a nonprofit can accept from one source. The limit is on how much of it counts toward public charity status. Under the 509(a)(1) test, one donor’s gifts count only up to 2% of five-year total support, so a few very large donors can pull a charity below one-third.

In the simplest case, with no investment income and every other dollar counted in full, one donor can supply up to about 68.7% of five-year support before the percentage drops below one-third. Each point of investment income lowers that ceiling by about a point. Under 509(a)(2), gifts from substantial contributors and board members do not count as public support at all.

The same concentration shows up in fundraising. If a handful of donors give most of your revenue, the 80/20 rule shows how to measure it. The public support test looks only at where support comes from, not at spending. For spending, see what a good overhead ratio looks like and how fundraising costs compare with what they raise.

What is public charity status 170(b)(1)(A)(vi)?

Public charity status 170(b)(1)(A)(vi) is the IRS classification for a charity that normally receives a substantial part of its support from government units or the general public. A charity keeps it by passing the 33⅓% test, or the 10% facts-and-circumstances test, on Part II of Schedule A. Section 509(a)(1) keeps such a charity out of private foundation status.

That is why the two sections are often named together, as “509(a)(1) and 170(b)(1)(A)(vi)”. Section 509(a)(2) is the other common support-based classification, for charities funded largely by program revenue.

What happens if a nonprofit fails the test?

One bad year does not end public charity status: a pass covers the year tested and the next one. A charity that fails both the 33⅓% test and the facts-and-circumstances test two years in a row, and does not qualify under 509(a)(2), becomes a private foundation from the first day of the second year (26 CFR 1.170A-9(f)(4)(vii)).

The facts-and-circumstances test needs at least 10% public support and an ongoing program to attract public or government support. The IRS then weighs factors such as how many people and sources support the charity and whether its board represents the community. The test exists only under 509(a)(1). A charity that fails one test can check whether it qualifies under the other before it files as a private foundation.

In that second year, it files Form 990-PF and pays the 1.39% excise tax on net investment income. From the next year on, all private foundation rules apply, such as limits on self-dealing and, for most foundations, a minimum annual payout. Its donors can also deduct less: cash gifts up to 30% of adjusted gross income, against 60% for a public charity.

Where your public support numbers come from

Schedule A is built from five years of gift records. The 2% math needs each donor’s five-year total, with family members and family companies combined, and every gift tied to its legal source. That often means a once-a-year spreadsheet rebuild, after development and finance have each counted the same gifts their own way.

Donor-advised fund grants show why the source matters. Development credits the grant to the donor who recommended it. Under current IRS rules, the grant comes from the fund’s sponsoring organization, and when that sponsor is publicly supported under 170(b)(1)(A)(vi) it usually counts in full (IRS Notice 2017-73). Counted under the donor’s name, the same money could be capped at 2%.

Ignite, the Active Intelligence Platform from StratusLIVE, records a donor-advised fund check in Ignite Finance with the sponsoring organization as payor while the donor keeps the giving credit, so both answers sit on one gift record. Ignite does not calculate the public support test itself. Our page for finance leaders covers how fundraising and finance can work from the same gift record.