Tax exemptions are given to various entities deemed eligible. Most non-profitable organizations get to benefit from these exemptions. Also, state or government entities are covered under exemptions and other departments that serve the people.
What is Tax Exemption?
Tax exemption is the “reduction or removal of a liability to make a compulsory payment that a ruling power would otherwise impose upon persons, property, income, or transactions.”
It is noted that “Tax-exempt status may provide complete relief from taxes, reduced rates, or tax on only a portion of items. Examples include exemption of charitable organizations from property taxes and income taxes, veterans, and certain cross-border or multi-jurisdictional scenarios” [Source].
Are Government Agencies Tax Exempt?
According to the IRS, government agencies are required to provide a tax-exempt number or a “determination” letter which will prove that an agency falls under the status of “tax-exempt” or qualifies to be a charitable entity [Source].
It further explained that some government units such as states and their divisions, including counties, municipalities, and agencies or departments, “are not generally subject to federal income.” This is partly because these agencies have sovereign powers linked to the state, which is the power to tax.
It is noted that “Most state and local government entities are not required to pay federal income tax. For non-tax reasons, though, government entities are sometimes asked to provide a tax-exempt number or determination letter to prove their status as a tax-exempt organization. State and local governments are not required to apply for this exempt status, however” [Source].
Does a Government Agency have a W-9?
Form W-9 is “used in the United States income tax system by a third party who must file an information return with the Internal Revenue Service. It requests the name, address, and taxpayer identification information of a taxpayer” [Source].
The government and its associated third parties are listed as entities that qualify as exempt for W-9 purposes [Source].
Are Police Departments Tax Exempt?
Property bought by police departments is usually non-taxable [Source]. The police departments benefit from the tax-exempt policy under the state’s wing.
Local Government Tax-Exempt Status
“Most state and local governments entities are not required to pay federal income tax” [Source], but can be asked to provide a tax-exempt number or determination letter which proves their status as a tax-exempt organization. Local governments are part of the central government decentralization process, so they are directly linked to the state. Most of their activities aim to serve the people in their locality.
Are Labor Unions Tax Exempt?
Under IRS 501(c)(5) “status provides exemption from federal income tax to labor, agricultural or horticultural organizations” [Source]. Labor unions are seen as non-profits entities, and they get millions from members’ dues and donations, but they do not pay federal or state income taxes on these members’ dues or donations.
Are all Hospitals Tax Exempt?
For hospitals to qualify as tax-exempt, there are legal requirements that they have to follow. These requirements are: “A non-profit hospital must be organized and operated exclusively to promote one of the purposes specified in section 501(c)(3) of the Internal Revenue Code, including charitable, religious, educational, scientific purposes” [Source]. Section 501(c)(3) extends its exemption from paying federal taxes, state taxes, and local property taxes.
Are Cemeteries Tax Exempt?
According to the IRC, section “501(a,) exempts cemeteries described in IRC 501(c)(13) from federal income tax” [Source]. This exemption is described as the oldest and was enacted in 1913. Contributions made to graveyards channeled to maintain specific plots are not tax-deductible, but those for general care are tax-deductible [Source].
Are College Students Tax Exempt?
IRS gave four terms that determine whether college students pay tax or not, specifically those who are US citizens or residents. The terms are as follows [Source]:
- The amount of your earned and unearned income
- Whether you can be claimed as a dependent on another person’s tax return
- Your filing status, and
- Your age
The amount of income taxable for students is pegged at $12,400. Those who receive lower income must file a return to receive refunds from federal and state withholding taxes [Source].
Are all Schools Tax-Exempt?
When it comes to schools, “The vast majority of public and private universities and colleges are tax-exempt entities as defined by IRC Section 501(c)(3) because of their educational purposes—purposes that the federal government has long recognized as fundamental to fostering the productive and civic capacity of its citizens—and/or the fact that they are state governmental entities. In turn, states generally grant tax-exempt status to organizations, including universities and colleges, which qualify as tax-exempt entities under Federal law” [Source].
Most schools fall under the non-stock and non-profit educational institutions, exempted from tax under Section 30(H) of the Tax Code [Source].
