What Is an EIN Number and Why Does a Nonprofit Need One?
Don't Confuse the EIN (Employer Identification Number) with the IRS 501(c)(3) Determination Letter
Often people ask, "If an organization has an EIN number, does that mean it is a tax-exempt nonprofit?"
The answer is no. The document that proves that a charity has been granted tax-exemption is the IRS Determination Letter.
Every 501(c)(3) organization received this document when their tax-exempt status was granted.
The letter should be kept safe so it can be shared with anyone who asks to see it. Also, funders, such as foundations or government agencies, will request a copy of the Determination Letter before agreeing to provide a grant.
It is not unusual, especially for small nonprofits, to misplace their IRS Determination Letter. That makes it rough for donors who want to know if their donation is tax-exempt and for people like new board members who need to know that the organization they have agreed to serve is a bona fide charity.
A charity that has forgotten about or misplaced its determination letter may try to prove its tax-exempt status by saying, "We have an EIN number." Unfortunately, that won't work.
If the determination letter cannot be found, there is a solution. The organization can get a new one from the IRS. There is a form to mail or fax, and you must know your EIN number. Here are the instructions.
So, If the EIN Is Not Proof of Tax Exemption, What Is It?
All businesses (including nonprofits) need an Employer Identification Number (or EIN).
An EIN works just like individual Social Security numbers. The EIN is formatted like this: 12-3456789. It is issued by the IRS and can be used for all of your organization's legal activities, such as opening a bank account, hiring employees, applying for business licenses, and filing tax forms,
There are other names for the EIN, such as Federal Employer Identification Number (FEIN), and Federal Tax Identification Number (TIN).
To avoid having to use a personal social security number while you begin the process of starting up your nonprofit, you should apply for an EIN once you have the details of your organization set up.
You may need an EIN before filing for incorporation in your state and before applying for tax-exempt status from the IRS.
It is just as important to protect your EIN as it is to protect a personal social security number. So guard it carefully.
How to Apply for an EIN
The person applying for the EIN must be a "responsible and duly authorized member or officer of the exempt organization." Your authorized agent or incorporator can also file for the EIN on your behalf.
That person will use his or her personal social security number for the application. However, once the EIN is established, no personal social security number will be needed.
The person applying for the EIN will need to have, besides his or her social security number, your organization's legal name and both the mailing address and the physical address of your organization.
There are three ways to obtain the EIN, and they are all simple:
- Call 1-800-829-4933 (Toll-free) to make the application, or
- Download IRS Form SS-4 from the IRS website. Fill out the form and fax or mail it in, or
- Apply online and have the confirmation letter emailed to you. This is the preferred method and the fastest.
Also, it is a good idea to print out the SS-4 and fill it out before you tackle the online form. If you don't do this, the online form could time out before you finish.
Once you have the EIN, you can use it on all the documents for your nonprofit, from applying for a bank account to filing your annual tax form (known as the 990).
Don't Fall for a Scam
There are lots of ads online for services that would like to help you apply for your EIN, at considerable cost!
These are scams. You do not need a specialist to get your EIN. Work directly with the IRS by following the tips above, and you will do just fine. Plus, the IRS charges nothing.