Even small businesses need Employer Identification Numbers, and that’s true even if the business doesn’t have employees. EIN Numbers and Federal Tax ID Numbers are one in the same: They’re a unique number used to identify your business for the federal government and financial institutions. Here’s what you need to know about getting one.
- Prepare Owner Information
- Apply for a Tax ID (EIN) Number for a Small Business Online
- Apply for a Tax ID (EIN) Number for a Small Business via Mail or Fax
- Why Do I Need a Tax ID (EIN) Number for a Small Business?
- Do I Need a Tax ID (EIN) Number if My Small Business Is a Sole Proprietorship?
- How Long Does It Take to Get a Tax ID (EIN) Number for a Small Business?
Before you apply for your small business Tax ID, collect information about the business owner (or a registered agent of the business). You will need the owner/agent’s full legal name, mailing address, social security number, or ITIN. This information will be used to contact the owner/agent if there are issues with the application process.
For your small business, you will need the name of your business, its mailing address, and the way that it was formed. You will also need to state why you need an ID number: whether the business was just formed, restructured, is hiring employees, or is opening bank accounts. Overall, you shouldn’t need a lot of information, and a tax ID service can tell you exactly what documents to find.
Small business owners usually don’t have a lot of time to fill out paperwork and wait for applications to be processed. Luckily, a Tax ID number can be acquired online. Once you have your business formation documents in hand, you can fill out an online form and receive your new Tax ID/EIN Number through email within an hour.
Realistically, as a small business owner, you’re not likely to have access to a fax machine: Fax machines are older technology, and even when they work, they’re erratic. While you can fax in your EIN form at a fax service, you’ll need to be able to receive information from that fax machine too. If your fax isn’t received, if there’s an error, or if the application needs to be fixed, you may receive a fax back. If you’re using a fax service, you may not get that information in time.
A tax ID number should be acquired at the very formation of a small business, because it’s used for:
- Building your business credit. Like an SSN, creditors will use your company’s EIN to determine whether you can get business loans, business credit cards, and business leases.
- Acquiring business bank accounts. You can’t open a bank account under your business name without an EIN, because it’s what a bank will use to track your company’s identification from institution to institution.
- Hiring employees. When hiring employees and filling out forms such as the W9, you need to have an employer identification number. An EIN will also be used when paying employees and paying employee taxes.
- Paying federal taxes. An employer identification number also operates as a federal tax ID number, which is used when you pay your taxes to the federal government. You may also need a state tax ID number to pay your state taxes.
- Licenses and permits. Many small businesses need permits from the government. These permits are applied for using your federal tax ID number as a unique identification number.
As you can see, many small businesses aren’t able to operate without an EIN or Federal Tax ID Number, because it’s used for so many things. It’s in your best interest to get an FEIN as quickly as possible.
Often known as a DBA (Doing Business As), a sole proprietorship means that you and your business are a single entity. When you have a sole proprietorship, you usually only file a single tax return, and you use your social security number as your Federal Tax ID Number. Consequently, you may feel as though there’s no reason to get a Tax ID Number.
However, there are two really important reasons. As a sole proprietor, you can’t hire employees unless you have an EIN. You can hire contractors, but not employees. If you need to hire employees, you need an EIN. Further, as a sole proprietor, you can’t open your own 401(k) plan (a tax-advantaged retirement plan) without getting an EIN first. An EIN lets you put away more money toward retirement.
Moreover, it really isn’t a bad thing to have an EIN in general, and a sole proprietor and self-employed person can qualify for an EIN.
The length of time it takes to get a tax ID or EIN Number is predicated upon the method used to get that number.
- Online. You will receive a tax ID number within an hour if you complete your application online through a tax ID service.
- Mail. You will receive a tax ID number in four to six weeks, depending on how lengthy the processing time currently is (it varies by season).
- Fax. You will receive a tax ID number between three to five business days, depending on the processing time and the availability of the fax.
Generally, it’s best to go through an online EIN application because you’ll know immediately whether your application failed or succeeded.
An EIN Number is one of the most important numbers for a small business, as it allows you to open small business accounts, establish your business credit and hire employees. By going through an online application process, you can get an EIN number quickly.