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Do You Need to Apply For a Federal Tax ID Number?

A federal tax ID number can be thought of as a company's federal identification number, in the same way that your social security number is your personal federal identification number. The government uses the federal tax identification number (also called an employer identification number, or EIN) to identify and track all tax payments that are submitted by that particular company.

With very few exceptions, all businesses must apply for an EIN. In the most basic form of sole proprietorship, in which the single owner simply declares all profits and loses on his or her personal tax return, an EIN is not necessary. But even in that situation, if the sole proprietor wants open a banking account in the name of his/her business, then an EIN will be needed. Here is a checklist of qualifications.

You must obtain a federal tax identification number if:

You want to open a business banking account.

You have employees.

You want to develop business credit or apply for a business loan.

Your business is a registered corporation or partnership.

You file a tax return for: Employment, Excise, Alcohol, Tobacco or Firearms?

You withhold taxes on income, other than wages, paid to a non-resident alien?

You have a Keogh plan?

You are involved with one 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, or, Plan administrators.

Application for an EIN is made directly to the Internal Revenue Service. The EIN page of the Internal Revenue Service website supplies instructions for applying by phone, fax, mail or online. If all is in order, an EIN can be issued at the end of a phone application or online application. By mail, the process can take up to four weeks.

If you are uncomfortable making your own application for a federal tax ID number, you can pay a small fee to a service and they will handle the entire application process. Often you can have this done at the same time you register your company, if you have not already done so.

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Information here does not constitute a legal advice. Please contact an attorney or accountant for specific expertise.

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do you need to apply for a federal tax id number?