Why Self-Employed People Sometimes Need A Federal Tax ID Number And How To Get One Free From The IRS

Why Self-Employed People Sometimes Need A Federal Tax ID Number And How To Get One Free From The IRS

There is a line on the small business tax form asking for your EIN; something required by the IRS in several situations. The common term for EIN is Federal Tax Identification Number. They’re easy to get, and don’t cost a cent, if you know where to go. Let’s take a look at who needs an EIN and why the IRS gives them to self-employed people.

Basically, an EIN is to a business the same type of identification that a social security number is for an individual. And, like a social security number it is supplied at no cost. Beware of online services offering to do the EIN or Federal Tax ID application for a fee; the IRS does it for free and your personal information remains safe.

EIN stands for Employer Identification Number, but employers are not the only people who need an EIN. If your business is involved in alcohol, tobacco or firearms, has a Keogh retirement plan, withholds taxes on payments to non-resident aliens or files excise taxes, you too are probably required to apply for and use an EIN. Anyone running their business as a corporation, operating a partnership with anyone but their spouse, and those involved in trusts also need an EIN.

Once you get your EIN it rarely changes. Bankruptcy proceedings, incorporation, becoming a partnership and changing an existing business into a sole-proprietorship all require a new number. The bottom line is, unless the ownership or structure of a business changes, one EIN will probably last your business a lifetime.

In the business world you will use your EIN, instead of your social security number, when you open the business bank account, apply for business licenses and when filing your tax return.

The application is free and easy. It can be done online at www.IRS.gov or by calling 1-800-829-4933. The questions are simple; name, business name, address, type of entity and principal activity for your business are about all they need to know. The number generally arrives in 1-2 weeks. You can also apply by fax or mail; it will take about 5 weeks to get your number by mail. The form, SS-4 Application for Employer Identification Number, can be printed from the IRS website.

Applying for an EIN is not something that can be handed off to an employee; only the owner or person who controls a partnership or corporation can provide this information and sign the SS-4.

Once you have applied you can tackle your tax return; simply write “Applied for” and the date of your application in the space where the number belongs. However, without the actual EIN you will have to file that tax return by mail; the actual EIN is required for electronic filing and payments.

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