What is a Business Tax ID Number?
What's in a name? Well Business ID Number means different things to different people. Let's discuss the possibilities.
Types of Business IDs
When most people talk about their Business ID Number they are actually referring to their Employer Identification Number (EIN) issued by the IRS. There are other types of business ID's used for business taxes or business financing.
Employer Identification Number Issued by the IRS
The EIN is a nine-digit number the IRS assigns to any business entity even sole proprietors and non-profit organizations, although sole proprietors (schedule C) don't have to have an EIN unless they remit payroll taxes.
Sole Proprietorship or Single-Member LLC without Employees
Sole proprietors filing on Schedule C of Form 1040 can use their social security number for their business. If you have obtained an EIN, you should use it instead. This applies whether you have formed an LLC or not.
State Tax IDs and Sales Tax Permits
Most states require your federal EIN on tax filings. Often they assign additional numbers depending on the type of tax. For instance, you will have a unique number, separate from your EIN when you are issued a sales tax permit. That sales tax permit will be different than other state assigned tax numbers, for instance franchise tax.
Are EIN and business ID number the same?
An Employer Identification Number (EIN) is the same thing as a Federal Tax ID. Sole proprietorships without employees, you do not need an EIN. You can use your social security number. An EIN is the same as a Federal Tax Identification Number.
Reasons to Get a Business Tax ID Number
Besides filing of federal taxes, you will need your EIN for business loan applications and to pen a business checking account. Business credit reporting services like D&B will use your EIN to track your business credit report.
Unless your business structure is an LLC or corporation, and don't have employees, you don't have to obtain an EIN for tax filing purposes, but you will want one for business financing and banking purposes.
How do I Obtain an Employee Identification Number?
You can complete an EIN online application with the IRS tool. The questions are tricky, however, so if you are not sure, ask us! Completing the form online with incorrect or erroneous information can cause headaches with the IRS. Usually it is nothing fatal, but it is a waste of time fixing it.
You will receive a confirmation notice in pdf format. Make sure you keep this document! If you are old school, and want to wait several business days to receive your confirmation letter, you can complete IRS form SS-4 and mail or fax (if you can find one).
When completing the form, you will have to identify a Responsible Party, an individual with a social security number. Nonresident alien and international applicants cannot use the online tool. You have the option of using a separate business address.
Where Do I Find my Employer Identification Number?
There is public record of EINs. If you are looking for your own, you can contact the Internal Revenue Service and verify your identity. Then they will resend the number via mail. They will not give you the number over the phone. If you're unsure of your number, they will verify it over the phone.
What do I do with the Employee Identification Number?
If you are forming an LLC or corporation for your business, make sure that you provide your EIN to the bank, and change the name on your bank account.
You will need your EIN when filing any federal (and most state income) tax forms, including 941's, 940, 1099, and W-2's/W-3.You will also use it when filing business tax returns. If you are a Single-Member LLC filing as a sole proprietorship, you will want to use your EIN instead of your social security number.
As a business owner, you will need your EIN to open a business bank account or business credit card and to obtain certain business licenses.
Other Business ID Numbers
States and municipalities will issue additional numbers to a business to remit various taxes and fees. For instance, you will be issued a separate sales tax permit number for reporting and remitting sales tax. Another example is state unemployment agencies using a different number than EIN to report wages.
One often confused number is those issued by Dun & Bradstreet. They are a commercial credit rating agency that acts similar to your personal credit report when issuing credit to businesses. A D&B number is not used for any tax reporting.
Conclusion
Most businesses may not need to have an Employee Identification Number, but it certainly doesn't hurt to get one. If you need assistance in determining whether you need one, or obtaining one, please reach out to Core at info@coregroupus.com. We're happy to help!