A Federal Tax ID is a nine digit number assigned by the US IRS to classify how a business is taxed. All businesses conducting operations with the US must have an entity classification and number. Federal agencies use the number to identify and regulate each business.
Yes. These are different, but have terminology that is commonly interchanged.
The IRS uses a TIN or Tax Identification Number, to differentiate the numbers it uses for tax purpose.
Numbers used for Identification are:
A variety of factors determine a business need for a Tax ID. Unless you own a sole proprietorship, any business that provides goods or services that can be taxed, must operate with a valid Federal Tax ID number. Operating with paid employees is also a qualifier for needing to register a Federal ID.
Sole Proprietors can use their personal SSN to identify the business. As the business owner, you do not need additional numbers since you will file and pay business taxes when you file a personal tax return.
Businesses that are LLC’S, Partnerships and Corporation entities will use the EIN even if no employees are listed.
However, there is an exception to this rule which is that a single member LLC will use the Social Security number of its owner, NOT the Tax ID/EIN.
For tax-exempt organizations, it is still highly advisable that they file for a Tax ID number. Whether or not the institution has employees, there might be some circumstances when the EIN is needed.
No, they are not the same. Federal and State tax reporting are conducted separately.
A state tax ID is only for state tax reporting. A state tax must be paid for any state that a business may have offices or employees. It is feasible that a business could have multiple state tax ID’s, thus making it a difficult identifier. Only one federal tax ID will be given for the overall business and it supersedes that of the state.
There is no fee for a Federal Tax ID application, but you may be need to pay for entity classification when you are applying.
No, the Federal Tax ID number is unique to a single business. Even if a business asks for a change, that specific number will not thereafter be re-assigned to a new business.
Selecting the right business entity for your company can be confusing, and making a mistake can have a drastic impact on your small business tax obligation. Contact our experienced CPA firm by completing the online contact form below or calling 919-420-0092 for help with guiding you through your business entity classification to make sure you select the right Federal ID for your company.
*Information presented on this website should not be construed as formal accounting or tax advice or the formation of an Accountant/CPA-client relationship. Additionally, any email sent to C.E. Thorn, CPA, PLLC at the email addresses set forth in this website will not create an Accountant/CPA-client relationship.