Obtaining a Federal Taxpayer Identification Number (ID) is an important first step in starting your own business.
According to the IRS, a federal tax identification number is used to identify a business. There are many reasons a business might need it, including paying employees, getting benefits, filing and paying taxes.
Here’s how to find out if you need a federal tax identification number, how to apply for one, and when your business should use it.
Federal Taxpayer Identification Number Versus EIN
In short, a federal tax identification number is the same as an EIN. However, as is often the case in business, you will hear several abbreviations that reflect the same concept. These acronyms can be confusing, but here’s a clear breakdown of what they refer to and how they differ.
- A federal tax identification number is also known as a TIN.
- Another abbreviation for Federal Taxpayer Identification Number is EIN, which stands for Employer Identification Number. An EIN must come from the IRS to be a federal taxpayer identification number and is used to identify a business entity.
- EIN may also be called FEIN (Federal Employer Identification Number).
Does my business need a federal tax identification number?
A business needs a federal tax identification number to apply for a bank account or loan. Here are a few more questions to help you figure out if your business needs a federal tax identification number:
- Do you have employees?
- Do you withhold taxes on any income other than wages paid to a non-resident alien?
- Is your business a partnership or a corporation?
- Is your business related to mortgage investments?
- Is your business related to real estate?
- Is your business affiliated with non-profit organizations?
- Is your business in real estate, trusts or IRAs?
- Do you file tobacco, employment, alcohol, firearms or excise taxes?
If the answer to any of these questions is yes, your business most likely needs a tax identification number. For more information visit IRS.gov
If your business is tax-exempt, you will still need to apply for an EIN. However, you must ensure that your business qualifies for tax exemption before applying for an EIN.
When applying for an EIN, tax-exempt businesses have three years to verify their status. You don’t want to waste that time trying to get around the legal hurdles and requirements to comply with tax exemption rules.
How to Apply for an IRS Identification Number
Once you have determined that your business needs a taxpayer identification number, you will work with the IRS to obtain one. You can apply online; other options include telephone, mail, or fax.
A federal tax identification number is provided free of charge, so stay away from any scammers who try to make you pay for an EIN. The IRS administers and assigns tax identification numbers to businesses throughout the United States, so you can apply directly to IRS.gov.
Here are three key steps:
1. Make sure your business is eligible
To obtain an EIN, your business must be operating in the United States. As a business owner applying for an EIN, you must have a valid tax identification number, such as a social security number or individual tax identification number. Check the list of questions above to see if your business qualifies for a federal tax identification number. You can also find helpful information in the online IRS FAQs.
2. Apply for only one EIN per day
You can only submit one EIN per day. If you are the only individual applying, you will be considered the responsible party for the business. The responsible party is the person that controls or owns the business entity and retains the most control over business decisions.
3. Get Your Federal Taxpayer Identification Number
After submitting an online application with all the required information, you should receive your federal tax identification number. You can view, download, save, and print a confirmation notice that includes your number directly from the IRS website. You can start using your EIN as soon as you receive this notice.
Once you receive your EIN, meet with a local banker to find out how a bank account can help you get started on the right foot and what funding options may be available to you.
For informational/educational purposes only. The views expressed in this article may differ from those of other employees and departments of JPMorgan Chase & Co. The views and strategies described may not be suitable for everyone and are not intended as specific advice/recommendations for any individual. You should carefully consider your needs and goals before making any decisions and consult with the appropriate professional(s). Outlook and past performance are no guarantee of future performance. JP Morgan, its affiliates and employees do not provide tax, legal or accounting advice. You should consult with your tax, legal and accounting advisors.
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