An attempted across-the-board federal funding freeze by the Trump administration, affecting thousands of US nonprofits, has been halted by court orders—for now.
The ongoing battle over critical federal funding has highlighted the interdependence of the federal government and the nonprofit sector. On the one hand, the attempted funding freeze revealed how many nonprofits rely in some way on federal funds to carry out their work; on the other, it highlighted the degree to which the nonprofit sector carries out the real, on-the-ground work of federal policy expected of government.
The scale and nature of government funding varies considerably across the diverse nonprofit sector.
As Independent Sector’s recent report, Health of the U.S. Nonprofit Sector, puts it: “Nonprofits make up a vital part of our society and our economy, fueled by giving from individuals, foundations, and corporations; revenue from programs and fees; and government contracts and grants.”
With so much uncertainty around the future of federal funding to nonprofits and the potential implications to society of major cuts to that funding, a review of this report and others provides a timely overview of our critical sector, as well as helpful data for advocates.
Nonprofits and Government Funding
US nonprofits generate a majority of their revenues on their own, from the program services they offer, which make up on average 20 percent of their revenues; and the funds they raise through donations (32 percent), according to the Independent Sector report. But government funding is a critical piece of the overall pie, making up, on average, about 20 percent of revenues. (Though the Urban Institute estimates the government share is higher—closer to 30 percent.) Additional nonprofit revenue streams include foundation and corporate grants (15 percent) and dues (6 percent).
Nonprofits generated more than $1.4 trillion in economic activity in 2023.
The Urban Institute’s report, Nonprofit Trends and Impacts 2021-2023, digs deeper into government funding and nonprofits, revealing that the scale and nature of public funding varies considerably across the diverse sector. Only a small share of public funding comes directly from federal agencies; a sizable amount passes through states and municipalities, in the form of block grants, for example, that support everything from affordable housing to community health centers. While 68 percent of nonprofits received at least some government funding, only 27 percent received direct federal grants, and just 10 percent received federal contracts.
The Nonprofit Trends and Impacts report further finds, perhaps not surprisingly, that the segments of the nonprofit sector that receive the greatest share of government funding are education (48 percent) and health (43 percent).
Large organizations (those with $1 million or more in annual expenses) receive greater shares of their revenue from government agencies (46 percent) than do smaller nonprofits (those with less than $100,000 in annual expenses), for which government funding makes up about 17 percent of revenues.
Approximately 10 percent of private sector jobs in the United States are in the nonprofit sector.
A Significant Driver of GDP and Employment
Nonprofits generated more than $1.4 trillion in economic activity in 2023 (the most recent year for which data is available), or 5.2 percent of the national gross domestic product, according to the recent report by Independent Sector.
Approximately 10 percent of private sector jobs in the United States are in the nonprofit sector. Tallying all jobs together—from nurses at nonprofit hospitals to food bank workers—there are 12.8 million jobs, making nonprofits the third-largest job category compared to private sector occupations.
There are slightly more nonprofit jobs than manufacturing ones (12.7 million). Only the retail and food/hospitality categories have more jobs, 15.4 million and 13.4 million, respectively.
Nonprofits collectively paid more than $870 billion in wages in 2022.
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A “Trusted” Sector
One of Independent Sector’s areas of research takes on new relevance amid the ongoing fight over nonprofit funding: Nonprofits are among the most trusted institutions in American society.
Nearly 60 percent (57 percent) of Americans reported having high trust in nonprofits in 2024, according to Independent Sector’s Health of the U.S. Nonprofit Sector report. This far surpasses the level of trust placed in other sectors of society, including small businesses (43 percent), people in one’s local community (36 percent), and the federal government, in which just 18 percent had a high degree of trust, making it the least trusted institution.
Americans were also far more likely to believe nonprofits were “making things better” than they did about other institutions examined. Forty-five percent had this view of nonprofits, compared to 20 percent who believed large businesses and corporations were making positive contributions, and just 18 percent who had this view of the federal government.
