To start a nonprofit in Maryland, you form a non-stock corporation with the State Department of Assessments and Taxation (SDAT), get a federal Employer Identification Number, and then apply to the IRS for 501(c)(3) tax-exempt status. The base state filing fee is $100, with a $50 surcharge if you intend to pursue federal exemption, and the IRS charges either $275 or $600 on top of that depending on which application form you qualify for. From there, you register with the Comptroller, sign up to solicit donations if you plan to fundraise, and commit to a short list of annual filings that keep both your charter and your tax exemption alive.
Pick a Name and a Resident Agent
Your corporation’s name has to be distinguishable from every other entity on file in Maryland. Run it through the Maryland Business Express search tool before you commit to a logo or domain, because SDAT will reject your formation documents if the name is too close to an existing one.
You also need a resident agent lined up before you file. That’s a person or company with a physical street address in Maryland (not a P.O. box) who agrees to accept legal papers for the organization. The agent’s name and address go into the Articles of Incorporation and become public record.1Maryland General Assembly. Maryland Code Corporations and Associations 2-104 – Articles of Incorporation A board member can take the role, or you can hire a commercial service, usually for $49 to $400 per year.
Build Your Board and Draft Bylaws
Maryland requires at least one director.2New York Codes, Rules and Regulations. MD Code, Corporations and Associations 2-402 – Minimum Number of Directors The IRS takes a harder look at 501(c)(3) applications when the board is tiny or when directors are closely related, so most organizers start with at least three unrelated directors to show independent oversight.
Before you take any official action, the board should hold an organizational meeting and adopt bylaws covering how votes work, how often you meet, how officers come and go, and what happens when a director resigns. Bylaws don’t get filed with any state agency, but you’ll submit a copy with your sales tax exemption application and the IRS will expect to see your governance documented.
Directors of a 501(c)(3) can be paid, but the IRS requires compensation to be reasonable and necessary for the mission, measured against what comparable organizations pay.3Internal Revenue Service. Paying Compensation Many smaller nonprofits don’t pay directors at all to avoid any appearance of private benefit.
File Articles of Incorporation with SDAT
The Articles of Incorporation are your founding legal document, governed by Maryland Code, Corporations and Associations Section 2-104.1Maryland General Assembly. Maryland Code Corporations and Associations 2-104 – Articles of Incorporation They must include the corporation’s name, principal office address, the resident agent’s name and address, each incorporator’s name and address (all incorporators must be at least 18), and a statement of purposes.
Two clauses in that purpose section decide whether the IRS will approve your exemption, and getting them wrong is the single most common filing mistake. The purpose clause has to state that the organization operates exclusively for charitable, educational, scientific, or other purposes recognized under Section 501(c)(3) of the Internal Revenue Code. Vague language triggers an IRS rejection. The articles also need a dissolution clause stating that if the nonprofit ever closes, remaining assets go to another 501(c)(3) or to a government entity for a public purpose.4Internal Revenue Service. Does the Organizing Document Contain the Dissolution Provision Required Under Section 501(c)(3) Without both clauses, you’ll have to amend the articles with SDAT before the IRS will finish reviewing you.
Fees and Processing
You can file online through Maryland Business Express or mail paper documents to SDAT. The base fee for a non-stock corporation is $100. Organizations seeking exemption under 501(c)(3), (c)(4), or (c)(6) pay an added $50 surcharge, for a total of $150.5Maryland Department of Assessments and Taxation. SDAT Corporate Charter Fee Schedule Online payments carry an additional 3% convenience fee.
Standard online processing runs six to eight weeks; paper filings take four to six.5Maryland Department of Assessments and Taxation. SDAT Corporate Charter Fee Schedule An extra $50 buys expedited review of seven to ten business days. Once SDAT approves the filing, you receive a certified copy that banks will require to open accounts.
Get a Federal EIN
Once SDAT accepts your articles, apply for a federal Employer Identification Number. It works like a Social Security number for the organization and is required for bank accounts, hiring, and tax filings. The IRS recommends forming the entity with the state first, since submitting an EIN application for an unformed entity can cause delays.6Internal Revenue Service. Get an Employer Identification Number The IRS online tool issues the number immediately and costs nothing. You can also apply by phone, fax, or mail using Form SS-4, but those routes take longer.
Apply to the IRS for 501(c)(3) Status
Federal tax-exempt recognition is what lets donors deduct contributions and shields the organization from federal income tax. You apply using Form 1023 or the streamlined Form 1023-EZ, both filed electronically through Pay.gov.7Internal Revenue Service. About Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code
Form 1023-EZ is available only to organizations that project annual gross receipts of $50,000 or less for each of the next three years, haven’t exceeded $50,000 in any of the past three years, and hold total assets of $250,000 or less.8Internal Revenue Service. Instructions for Form 1023-EZ The user fee is $275. If you exceed any threshold, you file the full Form 1023, which costs $600.9Internal Revenue Service. Form 1023 and 1023-EZ – Amount of User Fee
The full form asks for detailed activity narratives, officer and director compensation arrangements, board relationships, three years of projected revenues and expenses, and your conflict of interest policy. Review commonly takes several months. Having your projections, narratives, and governance documents polished before you open the application cuts down on IRS correspondence.
Register with the Comptroller and Claim Your Sales Tax Exemption
If your nonprofit will have employees or do anything subject to state tax, file the Maryland Combined Registration Application with the Comptroller of Maryland. One form covers income tax withholding, sales and use tax, unemployment insurance, and other accounts.10Comptroller of Maryland. Maryland Form CRA Combined Registration Application The Comptroller assigns a Central Registration Number that functions as your state tax ID.
Holding 501(c)(3) status does not automatically exempt you from Maryland sales tax on purchases. That’s a separate application through the Maryland Tax Connect portal, and you’ll submit copies of your IRS determination letter, articles of incorporation, and bylaws.11Comptroller of Maryland. Nonprofit Organizations Until the Sales and Use Tax Exemption Certificate is issued, you pay sales tax like any other buyer.
Register to Solicit Donations
Any organization asking for donations in Maryland has to register with the Secretary of State under the Maryland Solicitations Act (Title 6 of the Business Regulation Article). What you file depends on how much you raise.12Maryland Secretary of State. Registering a Charity
- If annual contributions are $25,000 or less, you file an Exempt Organization Fund-Raising Notice with no fee.
- Above $25,000, you complete the full initial registration with additional documentation and a registration fee.
- If you hire a professional solicitor, you complete the full registration regardless of how much you raise.
You’ll need to attach your IRS determination letter once it arrives. Register before you solicit, and renew annually. Soliciting without registering can draw fines and enforcement action from the Secretary of State’s office.
Adopt Governance Policies Before You File
Most governance policies aren’t technically required, but Form 990 asks whether you’ve adopted them, and empty boxes invite scrutiny. Three are worth having in place before you apply.
A conflict of interest policy should require directors and officers to disclose any financial interest that could sway their decisions and bar them from voting where a conflict exists. The IRS asks about it on both the exemption application and the annual Form 990, so draft it before you file.
A document retention and destruction policy sets how long records are kept and when they can be disposed of. Keep your original Form 1023 and IRS determination letter permanently. Retain Form 990 filings at least seven years, and make the three most recent returns available at your principal office for public inspection. The Sarbanes-Oxley Act makes destroying records to obstruct an investigation a federal crime, so a written policy protects the organization on both sides.
A whistleblower policy signals that the board takes internal accountability seriously and gives staff and volunteers a defined channel for raising problems.
Keep Your Status: Annual Filings
Forming the corporation and getting the exemption letter is the start, not the finish. Both Maryland and the IRS impose recurring obligations that can cost you good standing or your tax exemption outright.
Maryland Annual Report
Every Maryland corporation, nonprofits included, files an Annual Report (Form 1) with SDAT by April 15. Non-stock corporations pay no filing fee.13Maryland Department of Assessments and Taxation. Instructions for Form 1 – Annual Report and Business Personal Property A free 60-day extension is available online but must be requested by April 15. Miss the filing and SDAT can forfeit your right to conduct business in Maryland, which requires a revival process and additional fees to undo.
IRS Annual Returns
Every 501(c)(3) files an annual return. Which form depends on size:
- Gross receipts of $50,000 or less: Form 990-N, the brief electronic e-Postcard.14Internal Revenue Service. Annual Electronic Filing Requirement for Small Exempt Organizations – Form 990-N (e-Postcard)
- Gross receipts under $200,000 and total assets under $500,000: Form 990-EZ.15Internal Revenue Service. Instructions for Form 990-EZ
- Gross receipts of $200,000 or more, or total assets of $500,000 or more: the full Form 990.
Skip three consecutive years and the IRS automatically revokes your tax-exempt status. No warning letter, no grace period. Once revoked, you can’t receive tax-deductible contributions, and reinstatement means filing a new exemption application with the full user fee.16Internal Revenue Service. Automatic Revocation of Exemption for Non-Filing – Frequently Asked Questions Small organizations get caught this way more than you’d expect, often because they assume the e-Postcard is optional.
Public Support Test
Public charities classified under Section 509(a)(1) generally need to receive at least one-third of their support from public contributions, measured on a rolling five-year basis. Section 509(a)(2) organizations face a similar one-third public support rule plus a cap: no more than one-third of support can come from investment income and unrelated business income.17Internal Revenue Service. Exempt Organizations Annual Reporting Requirements – Form 990, Schedules A and B – Public Charity Support Test Falling below those thresholds can reclassify you as a private foundation, which carries a heavier regulatory load. Track funding sources from day one.
Volunteers and Employees
Nonprofits lean heavily on volunteers, and the line between a volunteer and an employee is a legal one. Under the Fair Labor Standards Act, a person is a volunteer only if they serve freely, without expectation of compensation, for charitable or humanitarian purposes. Volunteers generally work part-time and don’t displace paid staff. A paid employee can’t volunteer to do the same type of work for the same organization, and volunteers generally can’t staff commercial operations the nonprofit runs, such as a gift shop or thrift store.18U.S. Department of Labor. Fact Sheet 14A – Non-Profit Organizations and the Fair Labor Standards Act (FLSA)
When you hire, 501(c)(3) organizations are exempt from the Federal Unemployment Tax Act, so no federal unemployment tax on wages.19Internal Revenue Service. Section 501(c)(3) Organizations – FUTA Exemption You still withhold Social Security and Medicare on employee wages of $100 or more per year, and you still register with the Comptroller for state income tax withholding and unemployment insurance through the Combined Registration Application.