What Is The Difference Between An EIN Number And A Tax Exempt Number?

Many people confuse an EIN number with a tax exempt number, or believe that the two numbers are interchangeable. In fact, they are two completely separate and different numbers.

An EIN number is a federal tax identification number issued by the IRS and is used to identify businesses and other entities operating in the United States. Generally, an EIN number is used to file various IRS business tax returns, open business bank accounts, obtain business licences, etc. The federal tax identification number is nine (9) digits long and is issued in the following format: XX-XXXXXXX. Essentially, it is similar to a Social Security Number ("SSN") for an individual, but an EIN number is for businesses and entities. The business or entity can be organized within the United States or abroad, however, most entities requiring EIN numbers are formed within the US.

A tax exempt number is a number assigned by a state agency to identify the entity or organization as exempt from state sales taxes (if available). The IRS does not issue any numbers specifically to tax exempt organizations.

Tax exempt organizations may include churches, public charities, private foundations, social welfare groups, trade associations, social clubs, fraternities, employee benefit funds, veteran and political organizations, etc. To obtain more information on obtaining a tax exempt number for a non profit organization, visit your state revenue department.

To become a tax exempt organization, the non profit organization must apply for recognition of the exemption by filing IRS form 1023 - Application for Recognition of Exemption (for charitable organizations) or IRS form 1024 - Application for Recognition of Exemption (for other tax-exempt organizations). To determine whether you should complete IRS form 1023 or IRS form 1024, please view IRS Publication 557 - Tax-Exempt Status for Your Organization.

All businesses and entities in the United States must have an EIN number, except sole proprietors with no employees. Whether or not an entity has an EIN number does not indicate the entity's tax status. However, an entity must have an EIN number to apply for tax exempt status. Thus, if you are planning on starting a non profit organization, you must first obtain an EIN number before continuing with any other steps to obtain tax exempt recognition. Click on the following link to get a federal tax identification number for a non profit organization.

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