If you own a small business, you may be wondering whether or not you need a federal business tax ID number, also known as an Employee Identification Number (EIN). Much like your Social Security number, an EIN is a unique nine-digit number that identifies your business.
You use an EIN on all your federal business tax documents and forms, and oftentimes for state and local tax purposes as well. You also use it for business licenses and permits, and anywhere else you’re required to document your business with an IRS number. You can also use an EIN when you open a business bank account to help keep your business and personal expenses separate.
The IRS makes it very easy to get an EIN online. Here are the four steps you need to take to obtain an EIN:
1. Make sure you really need one.
The IRS requires you to get an EIN if your online store is in the United States or a U.S. territory and you have employees, you withhold taxes on the wages and salaries you pay, or you operate the business as a corporation or partnership. An EIN number is also necessary for other business entities like estates, trusts and nonprofit organizations.
Single-member LLCs with employees other than yourself also need an EIN. Single-member LLCs that employ no one other than yourself and sole proprietorships typically do not need an EIN, though you can still obtain one and use it in place of your Social Security number if you’d like. See the IRS website for further clarification.
2. Apply for an EIN.
The IRS prefers that you submit your EIN application online. By doing so, you gain the benefit of getting your EIN immediately after you complete the application. Visit the IRS website and click on the “Apply for an Employer ID Number (EIN)” button, which takes you to the EIN application page. Next, read the instructions and click “Apply Online Now” to reach the EIN Assistant page. Click “Begin application.”
3. Provide answers to questions.
You’ll first be asked to select the type of EIN for which you’re applying. Choices include a sole proprietorship, partnership, corporation, LLC, estate, trust or additional types, such as tax-exempt and government organizations. Based on each of those choices, you are then led through a series of other questions, including your reason for requesting an EIN, your name and Social Security number, and other relevant information you need to provide before you can finish your application.
4. Submit application and save documentation.
Once you’ve provided all the relevant answers, submit your application. The online system generates a new EIN that you can begin using immediately. The number can never be cancelled and will never be reassigned.
An official IRS document will download to your computer, which confirms that your application was successful and provides your EIN. Make sure you save a copy on your computer and print one for your records so that you have access to the number when you need it. If you ever forget your number, you can always call the IRS to get it.
Filing for an EIN is just the start for many small businesses. But it’s a necessary one for getting off on the right foot with the IRS and other taxing authorities, while creating an additional buffer between your business and personal finances.
Do you have any questions about setting up your Tax ID? Let us know in the comments!