How to Get Your Business Federal and State Tax ID Number
BY: MATT SHEALY ON THURSDAY, AUGUST 01, 2019
Just like how you would use your social security number to get a drivers license, open a bank account or file taxes, your business requires a similar process to ensure its identity with federal and state governments.
As a business owner, you may have been putting off getting your tax ID numbers together because doing so may be a little confusing. However, obtaining these credentials after getting your business registered is pretty straightforward and offers tons of benefits that can protect you in the long-run.
If you’re ready to legitimize your business and avoid any potential hassles, here’s how you can get your business federal and state tax ID number:
What is a Federal and State Tax ID Number?
Your federal and state tax ID numbers are essentially a social security number for your business.
What is a Federal Tax ID Number?
A federal tax ID number or Employer Identification Number (EIN) is what your business needs in order to execute a variety of tasks. For example, if you plan to hire employees or apply for different business licences and permits, then you should apply for an EIN right away to maintain compliance for your business.
Here are some other tasks you can complete once you have your EIN set up:
●Hire and pay employees
●Submit tax returns for yourself and employees
●Withhold wages and other taxes on income
●Open a bank account for your business
●Operate your business as a corporation or partnership
What is a State Tax ID Number?
Similar to your federal ID number, a state tax ID number is a separate requirement you need to in the event that your business must pay state taxes.
Keep in mind, some states don’t have an income tax, whereas some only enforce income taxes on dividends. As a rule of thumb, it’s best to explore your state’s website to learn more about their policies and what they expect you to have. In any case, obtaining a state tax ID number is fairly simple, but subject to each state’s guidelines.
Here are some of the tasks you can execute with a state tax ID number:
●Pay state taxes on behalf of your business
●Protect against identity theft for sole proprietorships
●Sell goods or services
Applying for a Federal and State Tax ID Number
Now that you have a better idea of what federal and state tax ID numbers are, you can decide whether or not you want to apply for one.
In most cases, your business will need these numbers to operate smoothly. As mentioned above, anyone forming a corporation or partnership with other business owners must obtain an EIN for identification with the Internal Revenue Service (IRS). In addition, some people will also need an EIN if they’re managing an estate, facilitating a trust, or running a non-profit organization.
For business owners operating under a sole proprietorship, using a personal social security number to do business is entirely okay, but it poses potential risks since there’s no separation of information between the person and the business entity.
In most cases, the IRS requires that anyone running a business use an EIN. Plus, getting both your federal and state tax ID numbers are made simple with the online application tools that are easy to navigate.
Getting Your Federal Tax ID Number Online
Using the IRS application portal, you can obtain your federal tax ID number online within a matter of minutes. Also, the entire process is free.
To get started, visit the IRS website and scroll down to the middle of the page. Click on the button that says “ Apply Online Now” to begin your application. It’s worth mentioning that the IRS does allow you to submit a request for an EIN by phone, fax, and regular mail, but doing it online is the quickest option that offers immediate results upon your request.
Once you’re in the portal, you’ll be prompted to answer a series of questions about the type of EIN you’re applying for according to your business's structure. Depending on which one it is (LLC, Partnership, Sole Proprietorship, S Corp), make sure to pick the one that matches. Next, you’ll be asked to state your reason for applying for an EIN, which can be for banking services, starting a new venture altogether, or to apply for a special license. Whatever the reasons may be, all you need to do is submit the application and wait for the EIN to generate on your computer. You should receive an email or notification that your EIN has been assigned and you can start putting it to use instantly.
Getting Your State Tax ID Number
With your federal tax ID number in place, you can now work with your local secretary of state’s office to apply for a state tax ID number in order to register your business with your state’s tax authority.
Similar to how you would apply for an EIN with the IRS, your secretary of state’s office should have an online portal to accommodate easy registration. However, every state is different and may have certain rules regarding their application in terms of how to submit it, any filing fees that must be paid, and how long it takes to get a response. It’s always a good idea to check with your state authorities to ensure that you’re following the right steps.
Whether you can submit it online or print it out and send it through the mail, an application typically asks you for your business address, your federal EIN, how many owners the business has, what type of business you’re running, and what type of goods or services you’re selling. After you put in your answers, simply pay for and submit your application.
Your final response and state tax ID certificate should come in the mail within 2-3 weeks, and once you have it, you may be required to display your state tax ID number somewhere at your business for customers to reference.
How to Change or Replace Your Federal and State Tax ID Number
In some cases, you may be required to change or replace your federal and state tax ID number to stay compliant and provide federal and state governments with your most recent information.
For instance, you may have to register for a new tax ID number if…
●You change your business’s name
●You relocate to a new address
●You have a change in ownership or management
●Your tax status has changed
Most requirements for changing your tax ID number with federal and state authorities comes down to what business structure you have in place but always check with the IRS and your local secretary of state’s office to make sure you take the right precautions
Hire a Third-Party Service to Claim Your Federal and State Tax ID Number
For many people starting a business, getting it registered, applying or an EIN and claiming a state tax ID number can be a hassle. Luckily, there are tons of third-party services that you can work with to handle these requirements for you and keep your business running smoothly on all levels.
Here is a quick rundown of the top online service providers that you can work with:
There are plenty to choose from to get started, but it’s important to see if using an incorporation service is right for you.
Primarily, the major upside to working with a provider is that you don’t have to have any legal experience beforehand. These services will walk you through every step of the incorporation process and take care of all the necessary paperwork to launch your business. You’ll also receive notifications about any future legal necessities, as well as phone and email support to ask questions and find help in case you get lost.
On the other hand, the downside to hiring services like these is that prices can be much more expensive than working directly with the IRS or your secretary of state’s office. Take LegalZoom as an example; they charge $149 plus taxes and fees to register an LLC with all the appropriate information and approvals, whereas registering one with your secretary of state may cost as little as $20.
Stay Informed and Stay Compliant
Regardless of what route you choose to start your business, having a federal and state tax ID number is a necessity to help stay informed and stay compliant with the right authorities.
The last thing you want is to find out that you didn’t take the right precautions or that your business is at risk from an error that’s easy to correct. This is especially true when you’re just starting out because any issues, in the beginning, may cost you important business to make your new venture a success.
Along with using the information above to your advantage, you can also find helpful resources from the Small Business Administration (SBA) to look up your state’s income and employment taxes requirements for your business. Plus, you can inquire about free business counselling services to overcome any challenges and prepare for the future.
Your federal and state tax ID numbers are vital to the success of your operations, so get to work and claim yours today!