Are you about to register a new business, or have you recently done so? Congratulations on your new venture! Registering your business is just one step of many when launching a brand-new company. When registering your business, it’s important to file for federal and state tax identification numbers. Here’s everything you need to know about applying for your business’s unique federal and state tax ID numbers.
What is a Federal Tax ID (EIN)?
“Federal tax ID” and “EIN (Employee Identification Number)” are two different names for the same thing. It is a unique, nine-digit number. Much like your personal Social Security number, your business’s EIN serves as a one-of-a-kind identification number. You won’t necessarily use it all the time, but it’s required on some very important forms regarding taxes, finances, and more. You will need your EIN whenever you:
- Pay your federal taxes
- Hire a new employee
- Open a business bank account
- Apply for a permit or license for your business
There are other forms that may require your EIN, but these are the most common situations. Nearly every business will need an EIN at some point in order to pay their employees. But even if you never hire workers, it’s a good idea to file for an EIN to ensure that you remain complainant with federal law.
What is a State Tax ID (SEIN)?
In many states, you will also need a state tax ID, which will be issued by your state’s Department of Revenue or similar agency. A state tax ID is sometimes called a SEIN, or state tax identification number. You only need a state tax ID in the states(s) where your business pays taxes. You can have more than one state tax ID if you operate in multiple different states. Unlike your EIN, which can often remain the same even if you relocate, your state tax ID will change if your business moves across state lines.
While your federal tax identification number is a versatile identifier, your state tax ID is solely for state tax reporting. This number is unlikely to be requested by any other party or agency aside from filing your state taxes. That’s because state IDs are not always required and they are much more subject to change than a federal ID.
How to Apply for an EIN
It is free to apply for an Employer Identification Number (EIN), and you can do so with this IRS online application tool. If you are unable to apply online for any reason, you may also apply by fax or mail, and international applicants can apply by telephone.
As soon as you register your business, you will be able to get your federal tax ID number. Again, you’ll need this number in order to pay employees, file tax returns, and more – so it’s always a good idea to go ahead and apply right after registering your new business.
The IRS online application tool is the preferred method of applying because it’s user-friendly and quick. You’ll simply need to fill out your business and personal information, including your social security number and business name. Immediately after filling out your information, you’ll be able to see and use your nine-digit EIN. It’s so simple that you can do it right now!
How to Change or Replace Your EIN
If you already have an Employer Identification Number and you think that you need to change it due to a business name change, ownership change or other reason, you’ll need to check with the IRS to make sure that the change is required. This IRS webpage will help you determine whether or not you need to obtain a new EIN. Some of the reasons for changing or replacing an EIN may include:
- Purchasing or inheriting a business
- Changes in business structure
- Adding or removing partnerships
- Changes in trusts/estates
- Bankruptcy
There are also several situations that do not require a change in EIN. If you read through the IRS webpage listed above and discover that you do need to change your EIN, you can do so via the Internet EIN application provided by the IRS.
How to Apply for a State Tax ID Number
Applying for a state tax ID will probably follow similar steps to getting a federal EIN, but it may vary depending on the state(s) your business is located in. Tax obligations will vary depending on your state and local laws. Some businesses do not need to pay state taxes. Some states don’t have income tax, or the income tax is only imposed on income from dividends. You may need to check your state’s websites and learn about the laws governing income taxes and employment taxes in your area.
Do All Businesses Need Tax ID Numbers?
If your business is a sole proprietorship or an LLC with no employees, you may not necessarily need business tax ID numbers. Instead, you can simply use your Social Security number in place of a federal or state tax ID. However, there are many situations that do require a tax ID number. If your business operates under any of the following structures, you will definitely need to apply for a federal tax ID number, and you will likely also need to apply for a state tax ID number:
- Sole proprietors who file pension or excise tax returns
- Partnerships (even if they have no employees aside from the partners)
- Corporations
Even if you’re able to use your own Social Security number, it doesn’t hurt to apply for an EIN and state tax ID. It may make things easier down the road if your business changes in any way, such as if you hire employees or bring on a partner.
Summary
When you register a new business, you will want to apply for a federal tax ID number (EIN) right away. The process is free and quick, and having an EIN will enable you to hire employees, pay your federal taxes, open a bank account, and more. You can apply for your federal EIN online, which allows you to get your EIN immediately. Certain changes to your business may require that you change or replace your EIN.
Many businesses will also need a state tax ID number in the state where they operate, though this number is only used in filing state taxes. To learn more about your state’s specific requirements, you’ll need to check with your state’s websites. You can also get in contact with your state’s Department of Revenue or similar agency to learn more.
If you’re not sure whether you need a federal EIN for your new business, it’s probably a good idea to go ahead and get one. If you’re not sure whether you need a state tax ID, check with your state.
Conclusion
Getting your state and federal tax ID numbers is an important step when building a new business. It doesn’t take much time at all, so if you have already registered your business name, then there’s no reason not to apply for your federal and state IDs right now!
Once you know the basics, filing for your EIN and state tax ID is easy. However, there are lots of other steps to building a business – and most of them aren’t as easy as this one. If it seems daunting, you’re not alone! Many new business owners benefit greatly from guidance on their road to entrepreneurial success, and that’s exactly why Entrepreneurial-Resources.com is here for. Get tools, business resources, and personalized guidance to make your new business the best it can be! You’ll also need to think about your marketing strategy, visit NegotiumConcepts.com for marketing solutions tailored to fit your business needs.