Unexpected Capabilities. Unmatched Service.

Startup Essentials Series: Obtaining Federal and State Tax ID Numbers

EDITOR’S NOTE: This is the second installation of a multi-post series dealing with decisions and tasks startup businesses face when getting off the ground. Click here to read the first article in the series.

When you were an employee, you needed a Social Security number to pay taxes. Now that you’re establishing your own business, you’re also going to need a federal tax ID number, and possibly a state tax ID number (depending on the state you’re doing business in).

Your federal tax ID number (also known as Employer Identification Number, or EIN) and state tax ID number function the same way your Social Security number does: They enable your business to pay taxes.

How Do I Know If I Need Federal or State Tax ID Numbers?

If you set up your business as a sole proprietorship, you may be able to use your Social Security number as your business tax ID. However, if your business does any one of the following, you will need a federal tax ID number:

  • Is structured as anything other than a sole proprietorship (a partnership, corporation, limited liability company and more)
  • Hires and pays employees
  • Withholds taxes on income, other than wages, paid to a non-resident alien
  • Has a tax-deferred pension plan (Keogh plan)
  • Files taxes for excise, employment, alcohol, tobacco and firearms
  • Involved with trusts, estates, real estate mortgage investment conduits, non-profit organizations, farmers’ cooperatives and plan administrators

What about a state tax ID number? You will need one if your business needs to pay state taxes. We say “if” because there are actually seven states that do not tax income. They are:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

If you do business in New Hampshire and/or Tennessee, you may not need a state tax ID either, because they only impose tax on income from dividends.

Even if you don’t need a state tax ID, you might still consider getting one as it can help protect you against identity theft.

Tax obligations do vary by state, so make sure to check your state’s website.

How Do I Get My State or Federal Tax ID Numbers?

Before anything else, an important thing to remember is that applying for these numbers is free. You may pay someone else to do it for you, but keep an eye out for anyone who says there’s a fee for the actual IRS service.

There are several ways to apply for a federal tax ID number:

  • Online: This is the easiest and most convenient method. Just go to the IRS website, apply and wait to be validated. If all goes well, you will be issued an EIN at the end of your session.
  • By fax: Download and fill out a completed Form SS-4, then fax it to the appropriate number. Your EIN will be faxed to you within four business days.
  • By mail: Similar to doing it by fax, fill out a Form SS-4 and then mail it to the appropriate address. Processing time for this method is four weeks.
  • By telephone: You may use this method if you’re an international applicant. Call 267-941-1099 from 6 a.m. to 11 p.m. Eastern Time. Please note that this is not a toll-free number.

To apply for a state tax ID number, you must first register your business with your state and obtain a federal tax ID number. You then can register with your state’s revenue department or other tax authority. Methods vary by state, but similar to getting a federal tax ID, you may be able to apply online, by fax, mail or telephone.

McManamon & Co. offers a wide range of business consulting services, including helping you get your federal and state tax ID numbers. Call us at 440.892.9088 or contact us online to get started.


Tags:  , , , , | Posted in Consulting, McManamon & Co., small business, small business taxes, taxes