Are you a small business owner or self-employed and wondering if you need a federal tax identification number? This article will answer that question.
Generally speaking, whether or not you need a federal identification number depends on the type of business entity you have. Here are the possibilities.
1. Unique property. If you are operating your business as an unincorporated sole proprietorship, you may not need to obtain a federal identification number because you can start by using your Social Security number (SSN) as your tax identification. When you file your income tax return, you will report your SSN on Schedule C and that’s enough.
However, there are situations where a sole proprietorship is required to obtain federal identification:
1) if you hire employees
2) if you file declarations of pension plans
3) if you file federal excise tax returns
The most common of these three scenarios is the first: hiring employees. If you are doing all the work yourself, you don’t have to worry. But if you hire only one employee (even if that employee is your spouse), you must obtain federal identification and write paychecks, withhold payroll taxes, make on-time payroll tax payments, and file payroll tax returns. . And your federal ID will be used on all of these payroll-related documents. That’s why the federal tax ID is also known as the employer identification number (EIN).
2. Other types of entities. If you operate your business as any type of entity other than a sole proprietorship, you must obtain a federal tax identification for your business. This includes any of the following types of businesses: partnership, C Corporation, S Corporation, and limited liability company (LLC). And you need to get a federal ID for any of these entities, whether your business has employees or not.
To obtain an EIN, you must apply for one with the Internal Revenue Service in one of three ways:
1. By visiting the IRS website at http://www.irs.gov/businesses/small. Click on the EIN link and complete the web-based application. You will receive your identification immediately upon successful submission of the required information.
2. By calling the IRS at 1-800-829-4933 between 7:00 am and 10:00 pm local time.
3. Sending a paper copy of Form SS-4 (Application for Employer Identification Number) to the IRS by fax or mail. You can get Form SS-4 from the IRS website. Follow the instructions to learn how to complete the form.