Federal Tax ID Number

Getting a Federal Tax ID number (also knows as an Employer Identification Number) is optional if you’re a sole proprietorship, but if your business acts as a C Corporation, S Corporation, Limited Liability Company, or a Partnership, you are required by law to have one.

What Is An Employer Identification Number?

An Employer Identification Number (or EIN for short) is also referred to as a Federal ID number, Tax ID Number, or Federal Tax ID Number. It is a nine-digit number used for tax filing and reporting and for other business documentation purposes. Rather than using your Social Security Number, your EIN can be used to obtain business licenses and permits, apply for business credit cards, aor set up business bank accounts.

An EIN helps establish a separation between your business and your personal self—which can help provide some liability protection for your personal assets. It also offers some privacy protection. If you work as a contractor, sharing your EIN rather than your SSN with everyone you do business with minimizes the risk of identity theft. The fewer people that see your SSN, the less open your identity is to being stolen.

Getting a Federal Tax ID number is optional if you’re a sole proprietor, but if your business acts as a C Corporation, Limited Liability Company, or a partnership, you are required by law to have one.

Do You Need an EIN?

The IRS identifies the specific circumstances under which a business must have an EIN. In these situations, an EIN is required:

  • The business has employees.
  • The business operates as a partnership or corporation.
  • The business has a Keogh plan (tax-deferred pension plan for small businesses and the self-employed).
  • The business withholds taxes on income, other than wages, paid to a non-resident alien.
  • The business is involved with one or more of the following: most types of trusts, farmers’ cooperatives, estates, non-profit organizations, plan administrators, and real estate mortgage investment conduits.
  • The business files certain types of tax returns, including Employment, Excise, or Alcohol, Tobacco, and Firearms.

Aside from the IRS requirements, an EIN serves the vital purpose of establishing a separation between a business and its owners, thus providing financial and legal liability protection of owners’ personal assets.

Also, for self-employed individuals, it can help retain privacy and prevent identity theft. Many self-employed small business owners choose voluntarily to apply for an EIN so that they don’t have to use their SSN on 1099 forms, business credit applications, sales tax invoices, and other business documents.

Applying for Your Federal Tax ID Number

The online EIN application is the fastest way to obtain an Employee Identification Number. Before the third party completes and submits the online application, the following steps must happen:

  1. Taxpayer (responsible party) signs a completed Form SS-4, including the third party designee section.
  2. The third party retains a copy of the completed Form SS-4 in its files.
  3. The taxpayer reads and signs a statement indicating the understanding that he or she has authorized the third party to apply for and receive the EIN.
  4. The third party retains a copy of the signed statement in its files.

After those steps are taken, and the third party successfully completes the online application, the IRS assigns the EIN and discloses it to the third party. The taxpayer for whom the third party requested the EIN will get a computer-generated notice from the IRS to acknowledge the EIN was assigned.

How Smart-Incorp Can Help

If an EIN application isn’t completed correctly or on time, it could mean you will need to delay hiring employees, applying for business licenses, and taking care of other essential business activities.

By authorizing Smart-Incorp to fill out the EIN application and submit it for you, you can avoid those issues. You’ll find that our fees to take care of the paperwork are minimal and well worth the peace of mind that your business has what it needs to move forward.

Contact my team at Smart-Incorp today for help in obtaining your EIN and handling all of your other business startup and compliance document filings.

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