Most individuals and organizations have to file and pay taxes each year — but that’s not the case if you qualify for tax-exempt status.
Tax-exempt status is common for charitable and religious organizations. Certain nonprofit organizations can complete a tax exemption form so they don’t have to pay income taxes.
While some organizations are eligible for tax exemption, certain criteria must be met to claim the tax exemption.
What does it mean to be tax-exempt?
Tax-exempt status means you don’t have to pay some or all of the taxes you typically have to pay on income or donations received. Certain types of revenue or income may be exempt, while other organizations may be exempt from paying taxes entirely.
Organizations that are eligible for tax-exempt status can file tax exemption forms. Once you’ve made sure you’re exempt from federal taxes, you can apply for tax-exempt status at the state and local levels.
While many nonprofit organizations are eligible for tax-exempt status, nonprofit organizations aren’t automatically tax-exempt. Nonprofit organizations have to apply for tax-exempt status before they can file exempt.
Tax-exempt status doesn’t mean an organization doesn’t pay any taxes. Some tax-exempt organizations may pay reduced taxes or may only pay taxes on a portion of income.
Who’s eligible for a tax exemption?
Generally speaking, certain types of nonprofit organizations are eligible for a tax exemption. Here are some of the types of organizations that can be tax-exempt:
- Charitable organizations
- Churches and religious organizations
- Private foundations
- Political organizations
- Other nonprofits
Public schools in most states are exempt from state taxes and federal taxes, but that’s not always the case for independent institutions. For example, many private schools operate as tax-exempt organizations.
Government organizations may receive a letter from the IRS detailing their tax-exempt status. You don’t have to apply for exempt status or pay an application fee if you operate a qualified government organization.
What are tax-exempt forms used for?
Tax-exempt forms are used to apply for tax-exempt status through the IRS. Even if you qualify as a tax-exempt organization, you have to continue paying taxes until you’ve been granted tax-exempt status.
There are several different tax-exempt forms for different types of organizations. For example, social welfare organizations have to fill out different tax-exempt forms than charitable, religious, and educational organizations.
We’ll break these down in more detail below.
What are the different types of tax-exempt forms?
Applying for tax-exempt status isn’t overly complicated, but you have to fill out the right forms based on the type of organization you run. There are different tax forms based on whether you’re a 501(c)(3), 501(c)(4), or 501(a).
As we mentioned earlier, government organizations don’t have to apply for tax-exempt status. Instead, the IRS will send your organization a letter detailing your tax-exempt status.
There are also state and local tax-exempt forms you may need to fill out depending on your state and local tax laws. We’ll break down the various types of tax exemption forms below.
Based on organization
You have to fill out different tax forms depending on the type of organization you’re applying as. For example, the process for applying for tax exemption as a 501(c)(3) is different than it is for a 501(c)(4).
Charitable, religious, and educational organizations that are considered a 501(c)(3) can fill out Form 1023 or 1023-EZ to apply for tax-exempt status. Form 1023-EZ is the shorter version of Form 1023.
You can find out if you’re eligible to use 1023-EZ by completing the Form 1023-EZ Eligibility Worksheet provided by the IRS. If you answer yes to any of these questions, use Form 1023 instead of 1023-EZ.
If your organization is a social welfare organization — or 501(c)(4) — there are two tax forms you need to file. Start by filing Form 8976, Notice of Intent to Operate Under Section 501(c)(4).
Now that you’ve filed for 501(c)(4) status, you can file Form 1024-A to apply for tax-exempt status as a 501(c)(4). It typically takes about 90 days to hear back from the IRS after applying for an exemption.
Other types of nonprofit organizations that operate under section 501(a) can complete Form 1024 to apply for tax-exempt status.
If you’re not sure which category your organization falls under, you can talk to a tax expert to make sure you’re filing the right tax forms.
Federal, state, and county tax-exempt forms
When you’re putting together your tax document checklist, don’t forget about applying for tax-exempt status on a state and local level.
The process of finding state and local tax-exempt forms will vary from state to state. You can reach out to your state’s Department of Revenue to find out which forms you need to file to be exempt from state taxes.
Most counties also have taxes, so you need to apply for an exemption from county taxes, too. You can search the name of your county followed by “tax exemption” to learn more about county-level exemptions.
If you’re having trouble finding any of these forms, you can contact your county tax office to find the forms you need. This is especially important in larger cities and counties where you pay transit taxes and other additional costs.
You can also ask a tax expert for help finding the forms you need to apply for tax-exempt status at every level.
How to find tax-exempt forms?
If you’re applying for a federal tax exemption, you can find everything you need on the IRS website. The IRS website also includes worksheets to determine your eligibility and line-by-line instructions for each tax form.
Keep in mind that it may take some time for the IRS — or state and county tax offices — to grant you tax-exempt status. You’ll usually hear back in about 90 days from when you apply, so be patient.
If you still can’t find the forms you’re looking for, a local tax expert can help.
What about personal exemptions on individual taxes
Currently, you can’t claim a personal exemption on your taxes — even if you’re not a dependent of another taxpayer.
As part of the Tax Cuts and Jobs Act, the deduction for personal exemptions and dependents is suspended for tax years 2018 through 2025. What this means is that the current personal exemption and dependent exemption deduction is $0.
Even if you’re claiming dependents or you’re not able to be claimed as a dependent, you aren’t eligible for personal or dependent exemptions until at least the 2026 tax year.
