Guide To Starting A Business

16. How to Get a Business Tax ID Number

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Running A Business

How to Get a Business Tax ID Number

Mar 16, 2023 • 7 min read
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      In the early days of being a small business owner, there’s always a lot of administrative work to complete. It’s tempting to neglect it and jump headfirst into growing your new operation, but that can cause significant problems later.

      If you’ve recently started a new small business, one of the most critical initial tasks is to get a business tax ID number. Here’s what you should know about what they are, why they matter, and how to get one.

      What is a business tax ID number?

      A business tax ID number is a unique, nine-digit code used to identify your business. You must provide one to complete various administrative actions, such as filing your annual income tax returns and opening a business bank account.

      Contrary to what you might expect, there are multiple types of business tax ID numbers. The three primary options include:

      • Social Security Number (SSN)
      • Individual Taxpayer Identification Number (ITIN)
      • Employer Identification Number (EIN)

      If you’re an American citizen born in the United States, the Social Security Administration (SSA) should have assigned you an SSN at birth. Permanent residents and eligible non-immigrant workers can request one from the SSA later in life.

      If you’re not eligible for an SSN because you’re a resident or non-resident alien, you’ll typically have to apply for an ITIN instead. Unlike SSNs, they’re issued by the Internal Revenue Service (IRS).

      SSNs and ITINs are both identifiers for individual taxpayers. However, business owners operating as sole proprietors can also use them as their business tax ID numbers, as long as they don’t hire employees. Sole proprietorships are entrepreneurs who do business in their own name without creating a separate legal business entity.

      Unlike SSNs and ITINs, EINs are exclusively business tax ID numbers. Depending on your business’ circumstances, the IRS may require that you use one. However, they’re generally the most practical choice for all business owners, even for sole proprietors without employees who aren’t required to have one.

      Using an EIN to conduct your business affairs instead of your personal taxpayer ID reduces the chances of someone stealing your identity. In addition, it helps separate your personal and business credit and demonstrate your company’s legitimacy to other parties. To get one, you must file a request with the IRS using your SSN or ITIN.

      Federal vs. state tax ID numbers.

      SSNs, ITINs, and EINs are federal tax ID numbers. That means they’re issued by the IRS, a federal agency, and are primarily for identifying your business when you file your federal tax returns.

      Depending on where your business is located, you may also have to get a separate state tax ID number. These serve the same purpose for certain state-specific tax matters. The requirements are unique to each state, so consult a CPA or other tax expert for guidance regarding the rules in your area.

      When do businesses need an EIN?

      Fortunately, the Internal Revenue Service (IRS) provides a quick questionnaire to help you determine whether you need to use an EIN as your business’ tax ID number instead of an SSN or ITIN:

      1. Do you have employees?
      2. Do you operate your business as a corporation or a partnership?
      3. Do you file any of these tax returns: Employment, Excise, or Alcohol, Tobacco, and Firearms?
      4. Do you withhold taxes on income, other than wages, paid to a non-resident alien?
      5. Do you have a Keogh plan?
      6. Are you involved with any of the following types of organizations?
      • Trusts (except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns)
      • Estates
      • Real estate mortgage investment conduits
      • Non-profit organizations
      • Farmers’ cooperatives
      • Plan administrators

      If you answered yes to any of those questions, the IRS requires that you use an EIN as your small business tax ID number. If you don’t know the answer to some of the questions above, consider consulting a Certified Public Accountant (CPA) for assistance.

      How to get an EIN.

      Whether you’re required to get an EIN or simply want one for the benefits they provide, the IRS makes it relatively easy to apply. It also provides the service for free, so don’t trust anyone that asks you to pay to complete the process.

      Before you submit a request, double-check your eligibility. To apply for an EIN, your business must be located in the U.S. or a U.S. Territory. You must also have a valid taxpayer identification number, which typically refers to an SSN or ITIN.

      If you meet these requirements, the easiest way to apply for an EIN is through the IRS digital application. You must complete the process in one session, as there’s no way to save your progress and return to it later.

      Fortunately, the application isn’t complex. Be prepared to supply the following information about yourself and your business:

      • Your full name and SSN or ITIN
      • The business’ name, if different from your own
      • The business address in the United States
      • Your reasons for requesting an EIN
      • The business’ legal structure or organization type
      • Your number of employees and the date of the first wages paid
      • The business’ principal activity and primary product or service

      You should be able to finish the application in a few minutes, after which you’ll immediately receive a PDF copy of your EIN letter. It’ll include your EIN and other important information regarding the number. Make sure you save a copy of it for your permanent records.

      If you can’t—or prefer not to—complete the application online, you can also download and complete IRS Form SS-4, then fax or mail the document to the IRS. The processing timeframe for faxed and mailed applications is four days and four weeks, respectively.

      Apply for a small business loan.

      Even when the IRS doesn’t require it, one of the primary reasons to request an EIN is that it helps you apply for small business loans. Financial institutions and online lenders are often unwilling to provide loans to businesses that don’t have one.

      Once you’ve completed the process and received your EIN, use Lendio to find the best funding for your small business. With one short application, you can match with personalized loan options from our network of lenders and receive capital to grow your business in as little as 24 hours. Give it a try today!

      About the author
      Nick Gallo, CPA

      Nick Gallo is a Certified Public Accountant and content marketer for the financial industry. He has been an auditor of international companies and a tax strategist for real estate investors. He now writes articles on personal and corporate finance, accounting and tax matters, and entrepreneurship.

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