Is an EIN the Same as a Tax-Exempt Number?

Organizations often need specific identification numbers and designations from federal authorities for operational and tax purposes. Understanding these identifiers is important for compliance and can prevent confusion regarding their roles.

Understanding the Employer Identification Number (EIN)

An Employer Identification Number (EIN) serves as a unique nine-digit tax identification number assigned by the Internal Revenue Service (IRS) to various business entities. This number functions much like a Social Security Number for an individual, but it is specifically for businesses. Organizations require an EIN for several key activities, including filing federal tax returns, establishing business bank accounts, and hiring employees. It is a fundamental identifier for an entity’s financial interactions with the government.

Many types of organizations must obtain an EIN to operate legally within the United States. These include corporations, partnerships, and multi-member limited liability companies (LLCs). Non-profit organizations, trusts, and estates also need an EIN for their tax and reporting requirements. Sole proprietors may also need an EIN if they hire employees or file excise tax returns.

Understanding Tax-Exempt Status

Tax-exempt status refers to a special designation granted by the IRS that relieves an organization from the obligation to pay federal income tax on its earnings. This status is conferred under specific sections of the Internal Revenue Code. The primary purpose of this exemption is to support organizations that engage in charitable, educational, religious, scientific, or other public benefit activities. It allows them to dedicate more resources to their mission rather than to tax liabilities.

Organizations seeking tax-exempt status must meet strict criteria outlined by the IRS to qualify for this designation. They must be organized and operated exclusively for exempt purposes, and their net earnings cannot benefit any private shareholder or individual. Such organizations are prohibited from engaging in political campaign activities or substantial lobbying. This status also allows eligible organizations to receive tax-deductible contributions from donors, providing an incentive for public support of their activities.

The Relationship Between EINs and Tax-Exempt Status

An Employer Identification Number (EIN) and tax-exempt status are distinct concepts that serve different purposes within the federal tax system. An EIN is a taxpayer identification number assigned to an entity for tracking its tax obligations and activities. Conversely, tax-exempt status is a specific designation granted by the IRS that exempts an organization from paying federal income tax, based on its purpose and activities. An EIN is required for nearly all entities that engage in business or financial transactions, regardless of their tax-exempt standing.

Having an EIN does not automatically grant an organization tax-exempt status. An organization must first obtain an EIN before it can apply for tax-exempt recognition from the IRS. The EIN acts as the primary identifier for the organization throughout the application process and for all subsequent tax filings. For example, an EIN is like a person’s name on a driver’s license, while tax-exempt status is akin to a special endorsement on that license that allows them to perform a specific function, such as driving a commercial vehicle.

The tax-exempt designation is formally granted through an IRS determination letter, which confirms the organization’s status under Internal Revenue Code Section 501(c)(3). While a tax-exempt organization will certainly have an EIN, the EIN itself is not the “tax-exempt number.” Instead, the EIN is used in conjunction with the tax-exempt status for all official communications, filings, and reporting requirements. This clear distinction underscores that one is an identifier, and the other is a legal tax status.

Applying for an Employer Identification Number (EIN)

Applying for an Employer Identification Number (EIN) requires gathering specific information about the entity and its responsible party. Before starting the application, the legal name of the entity, its mailing address, and the type of entity (e.g., corporation, partnership, non-profit) must be determined. The reason for applying for the EIN, such as starting a new business or hiring employees, also needs to be identified. The name and Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) of the responsible party, who is the individual with control over the entity’s funds and assets, are necessary.

The primary method for obtaining an EIN is through the IRS online application, which is available on the IRS website. After all required information has been accurately prepared, the online application can be completed in a single session. Upon successful submission, the EIN is assigned immediately. For applicants who prefer other methods, Form SS-4 can be completed and submitted via fax or mail. Faxed applications usually result in an EIN being issued within four business days, while mailed applications can take several weeks to process.

Applying for Tax-Exempt Status

Applying for tax-exempt status requires a comprehensive collection of documents and detailed information about the organization’s purpose and operations. Key requirements include the organization’s organizing documents, such as Articles of Incorporation or Articles of Organization, which must contain specific language about its exempt purpose and dissolution. Bylaws, detailed descriptions of past, present, and planned activities, and financial information for several years are also required to demonstrate eligibility. These materials provide the IRS with a complete picture of the entity’s structure and activities.

The primary forms for applying for tax-exempt status are Form 1023 for most charitable organizations, and Form 1023-EZ for smaller organizations meeting specific eligibility criteria. Both forms are submitted electronically through the IRS Pay.gov system. A user fee, which ranges from $275 to $600 depending on the form and the organization’s gross receipts, must be paid at the time of submission. After submission, processing times can vary significantly, often ranging from three to six months, with the IRS potentially requesting additional information before issuing a determination letter.