As a business owner, one of the most important responsibilities you face is ensuring the timely and accurate payment of your company's tax return. This requires maintaining organized financial records throughout the year and staying informed about business tax laws and regulations that could impact your financial obligations. Additionally, if your business requires them, there are two key requirements to keep in mind: obtaining a federal tax identification (ID) number and a state tax identification (ID) number.
In this blog article from Huddle Business Capital, we provide an overview of these two tax IDs, explain why a business needs them, and outline how to obtain them.
Federal tax identification (ID) number.
A federal tax identification (ID) number, also referred to as an Employer Identification Number (EIN), is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to businesses for tax purposes. It works like a social security number for a business. An EIN is essential for filing federal taxes, opening a business bank account, applying for specific business licenses or permits, and paying employee wages.
When an EIN is required.
Your business needs a federal tax ID number if it does any of the following:
- Operates as a partnership, limited liability company (LLC), corporation, or tax-exempt organization
- Pays employee wages
- Submits tax returns for employment, excise, as well as for alcohol, tobacco, and firearms.
- Withholds taxes on earnings, aside from salaries, disbursed to a non-resident alien.
- Utilizes a pension plan that allows for tax deferral.
How to get an EIN for your business.
Obtaining an EIN for your business is free. You can apply for an EIN on the Internal Revenue Service (IRS) website. The application process is straightforward and requires basic information about you, such as your name, address, and Social Security number, as well as details about your business, including the company name, company address, and legal structure. Once you submit your completed application, you will receive your 9-digit EIN.
State tax identification (ID) number.
A state's tax agency assigns a state tax identification (ID) number to a business for various purposes. This unique number works like a state version of the EIN and is used to manage state-level tax obligations, including the collection and reporting of sales taxes and income taxes. A state tax ID is often required for various registrations, permits, and business transactions.
When a state tax ID number is required.
The requirement for a state tax ID number depends on whether your business is liable for state taxes. If you are uncertain about your specific needs or the regulations in your state, it’s wise to consult with a qualified accountant who can provide personalized guidance. Additionally, you can find information on your state's official website, where you can access resources on tax obligations.
You should apply for a state tax ID if your business does any of the following:
- Operates as a partnership, limited liability company (LLC), or corporation
- Hires employees
- Sells taxable goods or services
How to get a state tax ID number.
If you discover that your business needs a state tax ID number, you can apply for one through your state's Department of Revenue website. This process usually involves filling out an online application form that requests basic information about you and your business. After submitting your application, you typically receive your state tax ID number promptly, which will be necessary for managing your state tax obligations and ensuring compliance with local regulations.
Disclaimer.
This Huddle Business Capital blog article is purely educational and contains general information and opinions; it is not intended to provide advice or recommendations of any kind. Huddle Business Capital is not affiliated with nor endorses the companies or organizations mentioned in this article.
