Why self-employed people sometimes need a federal tax ID number and how to get one for free from the IRS
There is a line on the small business tax form that asks for your EIN; something required by the IRS in various situations. The common term for EIN is Federal Tax Identification Number. They’re easy to get and don’t cost a hundred, if you know where to go. Let’s take a look at who needs an EIN and why the IRS gives them to the self-employed.
Basically, an EIN is the same type of identification for a business that a social security number is for an individual. And, like a social security number, it’s provided at no cost. Be wary of online services that offer to complete an EIN or federal tax ID application for a fee; the IRS does it for free and your personal information remains secure.
EIN stands for Employer Identification Number, but employers aren’t the only people who need an EIN. If your business is involved in alcohol, tobacco, or firearms, has a Keogh retirement plan, withholds tax on payments to nonresident aliens, or files excise taxes, you may also need to apply for and use an EIN. Anyone running their business as a corporation, operating a partnership with someone other than 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 to a sole proprietorship require a new number. The bottom line is that unless the ownership or structure of a business changes, an EIN is likely to last the life of your business.
In the business world, you’ll use your EIN, instead of your social security number, when you open your business bank account, apply for business licenses, and file your taxes.
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, company name, address, type of entity and main activity of your business is all they need to know. The number usually arrives in 1-2 weeks. You can also submit your application by fax or mail; it will take about 5 weeks to receive your number in the mail. The shape, SS-4 Application for Employer Identification Number, it can be printed from the IRS website.
Applying for an EIN is not something that can be handed 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” and the date of your request in the space where the number corresponds. However, without the actual EIN, you’ll have to file that tax return by mail; actual EIN required for electronic filing and payments.