Tax exempt refers to a person or company that is not required to pay taxes, such as income taxes, property taxes or sales tax on specific items. Eligible individuals and organizations have a tax exempt ID number to prove that they are not required to pay certain taxes.
Examples of organizations that are considered tax exempt include religious organizations, charities that provide relief for the underprivileged and some government organizations. Pension plans and educational institutions may also qualify as tax exempt. Being considered tax exempt is in no way related to claiming exemptions on an income tax return each year.