Do Churches Need a Federal Tax ID Number?
Explore the distinction between a church's tax-exempt status and the practical need for a Federal Tax ID Number (EIN) for daily financial operations.
While churches that meet the requirements of Internal Revenue Code (IRC) Section 501(c)(3) are automatically considered tax-exempt, most still need a federal tax identification number. This number is formally known as an Employer Identification Number, or EIN. The IRS states that every tax-exempt organization should have an EIN, even if it has no employees, as it serves as the primary identifier for the church in its financial and legal dealings.
Reasons a Church Needs an EIN
A church may need an EIN for several important reasons, including:
- Payroll: If a church compensates clergy, musicians, or other staff, it must withhold and remit federal income, Social Security, and Medicare taxes. An EIN is mandatory for reporting these withholdings to the IRS on forms like Form 941 and for issuing Form W-2 to employees.
- Bank Accounts: Financial institutions require an EIN to open a bank account in the church’s name. This separates church funds from personal accounts, ensuring donations are deposited correctly and creating a clear financial trail for accountability.
- Formal 501(c)(3) Recognition: Many churches apply for formal recognition of their tax-exempt status. This official letter assures donors that contributions are tax-deductible and may be needed for grants. The application, Form 1023, requires an EIN.
- Unrelated Business Income: An EIN is necessary if a church generates unrelated business income, which is income from a business not substantially related to its exempt purpose. The church must file Form 990-T to report this income, which requires an EIN.
Information Required to Obtain an EIN
The application, Form SS-4, requires the church’s full legal name and its mailing address. The name should be the official name as it appears in the church’s organizing documents, such as its constitution or bylaws.
The application also requires the name and taxpayer identification number of a “responsible party.” The responsible party is the individual who has a degree of control over the church’s finances and assets, such as a pastor, principal officer, or treasurer. The IRS requires this individual’s Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN), though an exception exists for those ineligible to obtain one. Any changes to the responsible party must be reported to the IRS within 60 days.
On Form SS-4, the church must identify its entity type, selecting “Church or church-controlled organization.” The form also asks for the reason for applying, with common options being “Started new business” or “Hired employees.” Finally, the church will need to provide the date it was legally organized or established.
The Application Process for an EIN
The fastest and most common method for obtaining an EIN is through the IRS’s online application portal. This process involves an interactive session where the applicant answers questions based on the information from Form SS-4. Upon successful validation of the information, the EIN is issued immediately, and the confirmation notice can be saved and printed.
For those who prefer not to use the online system, an application can be submitted by fax. A church representative must complete and sign Form SS-4 and fax it to the appropriate number listed in the form’s instructions. If a return fax number is provided, the IRS will fax the EIN back in approximately four business days.
The slowest method is to apply by mail. The completed and signed Form SS-4 must be mailed to the IRS service center designated for the church’s location. Processing times for mailed applications are about four to five weeks. Regardless of the application method, the church will receive an official EIN confirmation letter, which should be kept with the church’s permanent records.