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Obtain Tax ID Number

It is usually required that a business owner obtains a tax ID number on file with the IRS.

Tax ID numbers are necessary for businesses filing federal tax forms. [©Jupiter Images, 2010]
©Jupiter Images, 2010
Tax ID numbers are necessary for businesses filing federal tax forms.

Obtain Tax ID Number

It may be necessary for business owners to obtain a tax ID number because a Federal Tax ID Number identifies a business to the IRS. Not only does a business need it for tax purposes, but it also shields small businesses like daycare centers from identity theft. Anyone who is opening or thinking of starting their own business should get one.

Obtaining a Federal Tax ID Number

A Federal Tax Identification Number, also called an Employer Identification Number (EIN), is obtained online, by mail, by fax or over the phone through the Internal Revenue Service (IRS). A business must apply for an EIN if:

  • They have employees
  • They operate their business as a corporation or partnership
  • They file certain types of tax returns (employment, firearm, alcohol, excise)
  • They withhold taxes on income paid to a nonresident alien
  • They are involved with certain types of organizations (trusts, estates, real estate mortgage investment conduits, nonprofits, farmers cooperatives, plan administrators)

Anyone who is considering starting a sole proprietorship, a limited liability corporation (LLC) or a corporation should get a federal tax ID number before doing any business transactions.

Steps Involved

In order to obtain a business tax ID number, the filer must have a personal tax ID number like a Social Security number, employer identification number or individual taxpayer identification number.

A business owner can apply online at the IRS Web site, call the IRN toll-free telephone number, apply by fax or mail in an application. When applying online, the information is verified on the spot and an EIN is issued immediately. It is free and very fast, and the EIN can either be printed from ones home or office computer, or it can be mailed to the business owner within four weeks.

A tax ID number does not expire. However, there are situations where a business must file for a new EIN. These include: the business incorporates; the business files a Chapter 7 or Chapter 11 bankruptcy; a sole proprietorship becomes a partnership; or someone is establishing a pension, profit-sharing or retirement plan.

A new EIN is not required if the name of the business changes, if the business changes or adds locations or if one operates multiple businesses.

One good thing to know is that, according to LLC.com, an LLC must file first with their state before applying for an EIN from the IRS.

Paperwork Needed

If business owners file for a tax ID number online, all they need to fill out is an online form. When applying by phone or online, no paperwork is needed.

When applying by fax or mail, a business owner must complete a Form SS-4.

The SS-4 asks for the applicants name, address, state, the name of the principal officer and that persons identifying tax number. Boxes 8a-c ask if the business is a sole proprietorship, how many employees it has and if it is located in the United States.

Box 9a asks which type of entity a business is. The choices are sole proprietor, partnership, corporation, personal service corporation, church organization, other nonprofit, estate, plan administrator, trust, National Guard, farmers cooperative, REMIC, state or local government, federal government or military, Indian tribal or council, or other.

Box 10 asks for the reason a business owner is applying for an EIC. The reasons include: started a new business, hired employees, compliance with IRS withholding regulations, banking purpose, changed type of organization, purchased a business, created a trust and created a pension plan.

If a business doesn't want to handle the paperwork, they can hire a specialist to do it for them. An LLC can have a LLC business specialist gather the information, mail them a form to sign and fill out the EIN form for them.

Tax ID and the Business Owner

A Federal Tax ID Number allows a business owner to open a business bank account, apply for a business license and file tax returns by mail. Banks, business partners and lenders may require a business's EIN when conducting business.

Some businesses don't need an EIN but choose to get one anyway in order to avoid using their Social Security number in business deals. Whereas the IRS once required businesses to have employees in order to get an EIN, any business can now obtain one. Using an EIN rather than a Social Security number greatly reduces the risk of identity theft.

According to the Law Office of Melissa C. Marsh, a business must get an EIN before hiring employees because payroll taxes must be filed with a valid tax ID number.

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