Do Nonprofits Have an Employer Identification Number?
Grasp the essential federal identification number crucial for nonprofit operations and compliance. Understand its fundamental role for your organization's integrity.
An Employer Identification Number (EIN) acts as a unique federal tax identification number for business entities, similar to how a Social Security number identifies individuals. The Internal Revenue Service (IRS) assigns this nine-digit number to track various tax-related activities. This number is fundamental for any entity engaging in financial transactions or operating within the tax system.
Understanding the EIN for Nonprofits
Yes, nonprofits are generally required to obtain an Employer Identification Number. This number is mandated for nearly all organizations, even those without employees. The primary reason for this requirement is to identify the nonprofit for federal tax purposes. The IRS uses the EIN to track the organization’s tax accounts and to ensure compliance with federal tax regulations.
How to Obtain a Nonprofit EIN
To obtain an EIN, a nonprofit must first be legally formed within its state of operation. The application process, which is free of charge, can be completed through various methods provided by the IRS. The most common and often quickest method is applying online directly on the IRS website.
During the online application, applicants navigate through prompts, providing specific organizational details. This information includes the nonprofit’s legal name, its physical and mailing addresses, and the type of entity it is, such as a 501(c)(3) organization. The application also requires details about a “responsible party,” an individual with ultimate control over the nonprofit’s finances and assets, whose name and Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN) must be provided. Upon successful online submission, the EIN is typically issued immediately. Other application methods include faxing Form SS-4, which usually takes about four business days for processing, or mailing the form, which can take approximately four weeks to receive the EIN.
Essential Uses of a Nonprofit’s EIN
A nonprofit’s EIN is essential for various operational and compliance activities. One primary use is opening a dedicated bank account in the organization’s legal name, which is necessary for managing funds separately from personal accounts. The EIN is also required when applying for federal tax-exempt status with the IRS, such as under Section 501(c)(3), typically through Form 1023 or Form 1023-EZ.
Additionally, the EIN is used for filing annual information returns with the IRS, such as the Form 990 series, which varies based on the organization’s gross receipts and total assets. For instance, organizations with gross receipts normally less than $50,000 may file Form 990-N, while larger organizations might file Form 990-EZ or the full Form 990. If the nonprofit hires employees, the EIN is used for payroll reporting, including issuing W-2 forms and handling payroll taxes. The EIN is also frequently requested when applying for grants or loans, and for various state-level registrations.