A Federal Tax ID is a nine-digit number assigned by the IRS. It classifies how a business is taxed and is used by federal agencies to identify and regulate each business. All businesses conducting operations with the US must have an entity classification and number.
Yes. For businesses, a tax ID number and EIN (employer identification number) are the same number.
The majority of businesses are required to have a federal tax ID number/EIN. Sole proprietorships (businesses run by one person) are not required to have an EIN.
If your business is not a sole proprietorship and you provide goods/services that can be taxed or you have paid employees, you must register for a valid federal tax ID number.
Sole proprietors use their personal SSN to identify their business. They will file and pay business taxes when they file a personal tax return.
Businesses that fall under this categorization will use the EIN even if no employees are listed. The exception to this rule is a single member LLC. This classification uses the owner’s social security number, not a tax ID/EIN.
It is highly advisable that even tax-exempt organizations file for a tax ID number. Even if the institution does not have employees, circumstances may arise where the EIN is needed.
No. Your federal tax ID number and your state tax ID number are different. Your federal tax ID is assigned by the IRS, while your state tax ID is assigned by the state in which you live. You’ll use these numbers differently throughout the year and when you file taxes. State and federal taxes are filed separately.
Applying for a Federal tax ID/EIN is free, but you may be required to pay for entity classification when you apply for your number.
No. Your number is unique to your business. Even if a business requests a change, the number will not be reassigned to a new business.
To apply for a tax ID number, fill out the IRS form SS-4 here. It is recommended that you speak with a small business CPA prior to submitting your form to ensure your documentation is recorded properly from the start. While it is possible to make changes to your paperwork, it could take weeks before the change is accepted.
Choosing right business entity for your company can be confusing, and making a mistake can have a huge impact on your small business tax obligation. An experienced CPA can guide you through your business entity classification to make sure you select the right classification for your company. That’s why local business have trusted us with their accounting needs for nearly 30 years!