Understanding federal tax ID
What is a federal tax ID?
A federal tax identification number, also known as an employer identification number (EIN), is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to business entities operating in the United States. It's essentially a social security number for a business.
Why does my SMB need a federal tax ID?
Your SMB needs a federal tax ID for various reasons:
1. Tax reporting: It's used for tax filing and reporting purposes.
2. Employee payroll: Required if your business plans to hire employees.
3. Business bank account: Necessary for opening a business bank account.
4. Business licenses: Often needed for applying for business licenses.
5. Credit and financing: Essential for establishing business credit or applying for loans.
How do I obtain a federal tax ID?
To obtain a federal tax ID, you need to:
1. Ensure your business is legally formed and named.
2. Apply for an EIN through the IRS website, by mail, fax, or phone. The online application process is the fastest and is available to entities whose principal business is located in the United States or U.S. Territories.
Is there a cost to apply for a federal tax ID?
No, there is no cost to apply for a federal tax ID. The IRS provides this service free of charge.
Do I need a new federal tax ID if I change my business structure?
Yes, typically when a business changes its structure (for example, from sole proprietorship to corporation), it must obtain a new federal tax ID.
Can a business have more than one federal tax ID?
Generally, a business should only have one federal tax ID. However, if you operate multiple types of businesses, such as a corporation and a partnership, each may require its own EIN.
What if I lose or forget my federal tax ID?
If you lose or forget your federal tax ID, you can contact the IRS directly. They will verify your identity and provide you with the number.