Employer Identification Numbers: What Nonprofits Should Know

Nonprofit founders are often surprised to learn that the United States Internal Revenue Service (the IRS) requires nonprofits obtain an Employer Identification Number (also called an EIN), even if the nonprofit does not have employees; this includes nonprofits that are formed under the laws of a US state, as well as many nonprofits that were formed outside of the US but operate in the US. Additionally, EINs offer significant practical benefits for these nonprofits. Acquiring an EIN is free, easy, and can be done quickly in most cases, particularly if nonprofits use the IRS online application. This article will provide greater context for nonprofits surrounding what an EIN is and how to apply for one.

What is an EIN?

An EIN is a unique number that identifies an organization to the IRS. The IRS requires every nonprofit to obtain an EIN, and nonprofits need EINs for numerous tasks, including, for example, filing required tax forms such as the annual Form 990, opening a business bank account, hiring employees, applying for a business loan, applying for local business licenses and permits, and reporting and paying payroll taxes.

When should a nonprofit apply for an EIN?

A nonprofit that is organized in the US should apply for an EIN as soon as the organization has been legally set up in its state of formation. The organization will need an EIN to submit its application for tax exempt status.

For a nonprofit that was not formed in the US but is operating in the US or receiving income from US services, the decision of whether and when to apply for an EIN is more complicated, and these nonprofits should discuss these matters with their legal and tax advisors.

What is required for an EIN?

While anyone can apply on behalf of the organization, typically the founder or one of the initial board members will complete the application, which requires providing basic information about the organization. The applicant must also name a “responsible party” on the application. The responsible party for a nonprofit will usually be the Executive Director or President and must have a valid US Taxpayer Identification Number (Social Security number or Individual Taxpayer Identification Number). If none of the members of leadership in a nonprofit has a valid US Taxpayer Identification Number, then the nonprofit should consult its legal and tax advisors on how best to complete the “responsible party” portion of the EIN application.

How does an organization apply for an EIN?

Once the applicant is ready to apply, there are two ways to obtain the EIN:

1. Option 1: Apply online. The online application is the preferred method of many nonprofits. It takes just a few minutes to complete and will provide an EIN instantaneously upon acceptance. 
   • The application includes embedded help topics and hyperlinked definitions, so separate instructions are not needed. The information submitted is validated during the online session. Once the applicant has completed the application, the online portal will provide the EIN immediately. The applicant should take special care to download, save, and print the confirmation before exiting the confirmation screen. The IRS will send an EIN confirmation letter to the address on the application within several weeks of receiving the nonprofit’s completed online application.
   • It is important to note that the application must be completed in one session, since the portal does not allow an applicant to save the application and return later. The online application will expire after 15 minutes of inactivity, at which point the applicant will have to start over.
2. Option 2: Download IRS Form SS-4 from the IRS website. Then fill out the form and fax or mail it in.
   • If the organization applies by fax, it can expect to receive the EIN by fax within four business days. If the organization applies by mail, will typically receive the EIN by mail within about four weeks. However, as delays are common, nonprofits often prefer to use the online application.

For more information about acquiring an EIN, nonprofits can refer to the IRS website. This short explanation specifically for nonprofits provides additional detail. 

How much does an EIN cost?

It is free to apply for and obtain an EIN.

What does a nonprofit do with an EIN?

Once an organization receives its EIN, it should take care not to lose it. Online applicants should take a screenshot of their EIN, write it down, and print the page for their records before exiting the online portal. It is difficult to get an EIN reissued and problematic to reapply because a new application would cause there to be two EINs associated with the same entity.

Other things an EIN can be used for the following activities in the US:

• Filing tax returns. (Yes, nonprofit organizations must file tax returns.)
• Hiring employees, if applicable.
• Posting on the nonprofit website. Many nonprofits will list their EIN on their website, typically on the bottom of the homepage or on the “Donate” page, to help potential donors identify the organization for tax-deductible donations.
• Providing the EIN to donors on receipts. Nonprofits are required to provide receipts to donors for all donations over $250. While providing an EIN on donor receipts is not required, it can be helpful for donors.

In summary, nonprofits that are formed under the laws of a US state, as well as many nonprofits that were formed outside of the US but operate in the US or have income from US sources, are required to obtain an EIN and there can be significant benefits from doing so. Taking the time to apply will help any nonprofit remain in compliance with IRS requirements and establish a strong foundation for a bright future. 

With special thanks to Erin Walczewski, Tracey Christofferson Sullivan, and Amanda Hartman for their contributions.