What is a Federal Tax ID Number?
Before we answer the question of how to obtain federal tax id number, let’s understand what actually a Federal Tax ID number is. International Tax Revenue Service or IRS uses a number of identification numbers for various purposes. Federal Tax ID number, otherwise known as Employer Identification Number, is used as an identifier of business entities. Whenever you are providing tax related information to IRS, an appropriate Tax Identification number must be provided; which in case of businesses would be Federal Tax Identification Number or Employer Identification Number. There are a few determining factors which decide if you require a Federal Tax ID number or not. These include
- If you have hired employees in your business
- The nature of your business is of a corporation or a partnership
- You need to file for tax returns which include filing tax returns for employment, excise, firearms, tobacco or alcohol.
- You have to withhold taxes in the income that you need to pay to a non-resident.
- You are dealing with non-profit bodies, trusts, or farmer’s cooperatives.
- If you have a self-retirement plan, otherwise known as Keogh plan.
What Are the Advantages of a Federal Tax ID Number?
If you are looking for information on how to obtain Federal Tax ID Number, you must get to know the benefits and uses of it before deciding to obtain Federal Tax ID Number. Having a Federal Tax ID number also has some advantages which employers cannot enjoy otherwise.
To make your business a corporation or a partnership, you need a Federal Tax ID Number. Without it you cannot establish a business of the two categories. Having businesses of this nature has its own advantages; the debt and liability do not affect the assets of the business owner in case of corporation and taxes can be paid at their lowest under pass-through taxation in case of partnership as chosen structure of business. So all the effort you put in finding how to obtain Federal Tax ID Number can be a productive investment due to this benefit over sole proprietorship.
Enables Hiring Employee/s
If you are running your business solely, then there is no need to invest time in finding how to obtain federal tax id number; but in case you decide to hire work force, you will need to obtain Employer’s Identification Number. So this document being a criterion latently enables you to have the advantage of a team.
Tax Withholding for a Non-Resident Alien
If you have the perks of employing a person who has not cleared the green card or substantial presence test yet, you will need to have an EIN, for withholding taxes over wages or other payments. The benefits come with this identification only.
If you being a self employed individual want to make your own retirement plan, you will require a Federal Tax ID Number for that. You can then decide how you want to structure you retirement plan. This applies not just to self employed individuals but also to unincorporated businesses. Hence you will have to start researching how to obtain Federal Tax ID Number.
The advantage of safety of personal assets of the business owner comes with having a Federal Tax Identification Number. If you have an EIN, you can open up a business account instead of making transactions from your personal account. This would automatically increase the credential level of your account and make you a stronger contender if you want to apply for bigger loans. So if you want to have safer and credible transactions, you will need to be well informed about how to obtain Federal Tax ID Number.
Having a Federal Tax ID Number also reduces the risk of identity theft. Many a times, one may not feel comfortable sharing their Social Security number in professional dealings. In that case having a Federal Tax Identification Number would be a blessing in disguise.
So before you wonder about how to obtain Federal Tax ID Number, you must ask yourself why to obtain Federal Tax ID Number. The above mentioned advantages are reason enough to obtain an EIN.
How to Obtain Federal Tax ID Number?
When start to brainstorm about how to obtain Federal Tax ID Number, you will come across many options. You can either go for the traditional method of by mail application, apply though fax, or choose the easiest way available; online application.
Applying Via Fax
If you apply for Federal Tax Identification number via Fax then you have to fill the ‘Form S-4’ application and send it to the official fax number. The process is conducted formally to establish if the business entity is eligible for an EIN or not. Once the decision is in the favor of the applicant, EIN is sent back in a period of four days. Make sure that your application is complete and does not lack any details. It is ideal to provide a fax number if you are sending the application via fax so that the officials can send it back through the same channel. This is not such a common means of how to obtain Federal Tax ID Number.
Applying Via Mail
The same form, Form SS-4, is to be filled and sent via mail to obtain a Federal Tax Identification Number. You will have to send it on the relevant address and the entire procedure of determining whether the business should be issued a Federal Tax Identification Number or not usually takes up to four weeks. This is a pretty common way people adopt when they consider options for how to obtain Federal Tax ID Number.
Applying Over the Phone
This method is an open line for the international applicants looking fo possible ways on how to obtain Federal Tax ID Number. The applicant has to call on 267-941-1099 to answer questions regarding Form SS-4. The phone line is open five days a week, Monday to Friday, from 11AM to 6PM EST. The application also has a Third Party Designee section which allows the third party to receive the EIN and answer questions about Form SS-4. This authority is terminated once the designee receives the Federal Tax Identification Number the signature area is to be completed by the original applicant.
If we consider ease in how to obtain Federal Tax ID Number, this is the easiest, quickest and most preferred method of applying for Employer’s Identification Number. The application is sent online and the content is confirmed in an online session which is immediately followed by the release of Federal Tax Identification Number. The online application option is open to all kinds of business entities who have principal office or agency in the US or its territories. The principal in-charge should have a valid Tax Identification number of any kind I order to have access to this online application. This is a relatively new option and the response of the general public is very positive to it. Though, there are some frequently asked questions about this application which can be easily answered.
- One of the most common queries is how soon can an EIN be used for making tax payments or filing tax returns. The Federal Tax Identification Number can be used on for almost the business dealings which only include filing a tax return, making a tax payment, opening a bank account, etc., but also the same transactions can be made online once it is permanently added in IRS’s official records. This usually takes about two months’ time.
- Another most common concern when wondering how to obtain Federal Tax ID Number is about the protocol to follow in case one forgets the EIN. This will not require more than a call to the IRS helpline at (800) 829-4933. The caller can request to talk to an IRS assistor who will ask some verification ad security questions to confirm the identity and then provide the Federal Tax Identification Number.
- Some of us folks are technically challenged so sometimes applicants also inquire if any particular software is needed to download this application. No such thing is needed. You need to have an internet connection on your computer, an up-to-date browser and Adobe reader in case you receive a confirmation letter online.
- When can EINs be used once it has been obtained? After inquiring how to obtain Federal Tax ID Number, this is one of the most common queries the applicants have. To answer this, it will require a few days time because based on the information provided on your application, you will be added to Enrollment Federal Tax Payment System (EFTPS). Once that is done, you will receive a confirmation email with the detailed instructions of usage and your Personal Identification Number (PIN). After receiving the confirmation email, you can use the EIN obtained for all the dealings and transactions.
When an applicant is looking for channels on how to obtain a Federal Tax ID Number, they will need to fill only one form in all methods; Form SS-4. The Form can be divided in three sections. The first section focuses on the details and information required to obtain Federal Tax ID number. This includes the applicant’s name; their trade name of business which should only include alphabets (A-Z), numerical (0-9) and hyphen (-); mailing address; the name of executer, trustee or administrator; City, State details; the Country and State in which the principal business is set up; and name of the party responsible. The form also specifically asks if the applying business is a limited liability company (LLC); if it is, then the LLC number needs to be mentioned as well. Following this, the form requires the nature of business to be chosen as well i.e if the business is a sole proprietorship, partnership, corporations, non-profit organization of any kind, farmers’ cooperative, etc. in case of corporation, the state and foreign country were incorporated needs to be mentioned.
The applicant also needs to clarify the reason of application, why the EIN or Federal Tax Identification Number is needed, and what is the highest number of expected employees in the next twelve months if any. Along with this, the applicant also needs to clearly state if the expected tax reliability is to be $1000 or less in a full calendar year and would like to file Form 944 or 941. Form 944 is to be filled in case of opting annual filing of employment tax liability and Form 941 in cases if quarterly filing is opted. The rest of the form addresses details the principal activities and specific merchandise sold, services provided, etc. In case the applicant is applying to obtain Federal Tax ID Number for the second time, then the previous EIN is to be stated.
3rd Party Designee
In case of a foreigner applicant, a third party designee can be appointed for dealing and communicating. In case the principal owner wants to allow some authority t the designee, he can do so by filling out the last section of Form SS-4. This section requires the designee’s name and location details as well as the designee ad the applicant’s contact details along with a signed declaration by the principal owner that he warrants authority to the third party designee.
Do I Need a Federal Tax Identification Number
Lastly, the form also incorporated the conditions under which a business entity would need an EIN or a Federal Tax Identification Number and how to go about it. This section specifically discusses the conditions and what parts of the form to fill accordingly in order to understand how to obtain Federal Tax ID Number.
You will need to use one of the means of how to obtain Federal Tax ID Number if you change the nature of your business from sole proprietorship to corporation or partnership. In case of proceedings from a bankruptcy or inheriting an already existing business as a sole proprietor will also require a new Federal Tax ID Number. But in cases like changing the name or location of the business or operating multiple business entities, new EINs will not be needed .
If a corporation receives a new charter from the secretary of state or a new corporation is formed after a statutory merger, then in both instances a new Federal Tax ID Number will need to be obtained. Similarly if you change to corporation from partnership or sole proprietorship; become a subsidiary to a corporation; or a subsidiary to a corporation using parent company’s EIN, then issuance of a new Federal Tax ID Number is in order. But in cases like being division of a corporation, declaration of bankruptcy, or changes in the name, location or state level would not require acquiring a new EIN so you will not have to worry about how to obtain Federal Tax ID Number all over again.
There are only three changes in partnership that guide how to obtain Federal Tax ID Number ; changing of the business from partnership to corporation or from partnership to sole proprietorship by a partner, or the termination of a previous partnership to start a new one. But just like in the case of a corporation, a partnership will not require a new Federal Tax ID Number in case of a bankruptcy, or change in the name or location of the partnership. Additionally, if within a year’s time period fifty percent or more of the ownership of partnership changes hands, then one will not have to be concerned about how to obtain Federal Tax ID Number as a new one will not be needed.
So concisely put, these are the basic guidelines that will help you about how to obtain Federal Tax ID Number. The process has been made very easy due to the online application system and not much effort or time is needed to get things done. We hope this blog helps to improve yor understanding of the process of how to obtain Federal Tax ID Number.