Non-profit organizations are defined as an organization that is designed to provide a service without necessarily earning an income. Those that fall under this category may include religion, charities, volunteer groups, volunteer labor groups, professional associations, political organizations, and college/research institutes. There are also some government agencies whose purpose is not to generate profits. But to become a non-profit in the eyes of the government that still need to secure their non-profit tax ID.
Tax Exemptions for Non-Profits
For taxes purpose, the Internal Revenue Service grants exemptions to nonprofit organizations. However, it’s still unclear for some nonprofits whether or not they are automatically exempted from applying for their Employer Identification Number (EIN) or a nonprofit tax ID.
Sec. 501 of the tax code does excuse non-profits from paying federal taxes but there are conditions involved for federal and state taxes. The government said that an organization will be tax-exempt if the purpose is for charity. Religious groups are also exempted as long as their activities are not built for profit.
Scientific research and educational undertakings are also not liable, such as some colleges and schools. But the organization must first prove that the earnings will not benefit any of the shareholders. The group is also prohibited from being partisan in politics or lobbying for legislation to push an agenda.
Before an organization gets qualified for a non-profit tax exemption, it should apply for recognition from the federal IRS within 27 months after the end of the month when it was created. The application process can take sometime before being approved by the US Government.
Filing Annual Tax for Non-Profits
But most organizations, which identify themselves as non-profit, are still obliged by the IRS to file annual tax returns called the Form 990, depending on the state and what the organization does.
The form allows the IRS and the public to see the operation of a non-profit organization, including its programs and finances made by the non-profit. Moreover, not all non-profit are obliged to file the annual returns. These organizations generally include faith-based organizations, missionary organizations, subsidiaries of other nonprofits, and some state institutions.
When an organization fails to file IRS Form 990 for three consecutive years, the tax-exempt status of the nonprofit organization will be revoked.
When Do Nonprofit Organization Pay Taxes
This is where non-profits can start getting into tax troubles with the government. Once a non-profit starts to make a profit, they become obliged to pay an income tax on the profit they earn that year. The organization should also ensure that its employees are covered by health insurance and social security. Again the purpose of a non-profit is to provide a service without necessarily earning an income. Many religious groups are starting to get into trouble because of this.
If you are a non-profit organization and looking to apply for a non-profit tax ID, look at online options like GovDocFiling and receive your Tax ID via email. They will help you file for a non-profit tax ID so you don’t have to worry about filing out paperwork and they will double check everything.
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