Is Paypal a good option for a 501c3?

Our homeschool group is currently looking into using Paypal so that we can collect membership dues online. We had a few questions we hoped you could answer.
Is Paypal a good option for a 501c3?
Would using Paypal affect tax paperwork in any way?
Paypal charges a transaction fee. Does it make a difference whether we ask the individual to pay the fee or whether we pay the fee out of our budget?
Is there an online payment method that you would suggest other than Paypal?

Jessica B.


Lots of nonprofits use Paypal. It is a secure, convenient way to collect fees. Using Paypal or other electronic payment system doesn’t affect your “tax paperwork,” the annual IRS Form 990/990-EZ/990-N, reporting in any way. Just treat Paypal like a checking account. Money comes in, fees are paid out, and transfers go out to your bank checking account.

Reduced PayPal fees for 501c3 nonprofits

If you send Paypal your 501c3 determination letter from the IRS, they will reduce the fee from 2.9% to 2.2%.

It doesn’t matter if you increase your fees to cover the Paypal fee or just pay it out of your budget. It’s part of the cost of doing business. What is not allowed is to charge customers who uses Paypal more than those who pay in cash or by check. So you may have to increase the fees to everyone to cover the Paypal fees.

Alternatives to PayPal

I looked into other online payments for nonprofits. Some let you ask the donor/payor to pay the fee, but then they charge 4% or a high monthly fee which is not affordable for most small nonprofits.

I’m the treasurer for a charity (a food pantry). We request donations of $100 or more by by check to avoid giving Paypal too much in fees. One donor gave $1,000 via Paypal and we paid $22 in fees!

In my business I use Quickbooks Merchant Services when I have a large invoice (like $200 or more) to send to a client. I only accept payment by check or ACH (echeck), not credit card with QuickBooks. QuickBooks only charges $1.00 per ACH transaction. That’s a lot less than Paypal’s 2.9%.

I also use Stripe in my business, which is a lot like Paypal. I let clients pay me via Stripe if it’s under $100. I just “eat” the fee. I don’t increase my invoice if they want to pay with a credit card. But I wish more paid by echeck/ACH. Stripe only charges 0.8% for an ACH transaction. A lot less than 2.9%.
So if your group’s membership fee is high, ask for payment by check or ACH, maybe via Stripe or Paypal. 

Please avoid using platforms like Zelle, Venmo or PayPal Friends and Family to avoid paying fees. These are for non-business money transfers only.

Instead pay the fees and be glad that these services exist. They allow for a convenient way to get paid securely and we shouldn’t expect a service like Paypal to be free all the time.

If you have more questions about managing money in a homeschool organization my book may be very helpful.
Money Management in a Homeschool Organization

I hope that helps.

Leave a Reply