Navigating the world of business and organizational finance often brings up unfamiliar terms, and “Tax ID Number” is one that frequently causes confusion. Many people searching for a Tax ID Number are actually looking for a Federal Employer Identification Number (FEIN). If you’ve been told by a bank that you need this number to open an account, especially for a non-profit organization, you’re in the right place to understand what it is and how to get one.
Decoding the FEIN: Your Business’s Social Security Number
A Federal Employer Identification Number (FEIN) is essentially a unique identification number assigned to businesses and other entities by the Internal Revenue Service (IRS). Think of it as a Social Security number for your business. The IRS uses this number to identify taxpayers who are required to file various business tax returns. It’s crucial for corporations, partnerships, limited liability companies (LLCs), non-profit organizations, and even sole proprietorships under certain circumstances.
Alt text: The Internal Revenue Service (IRS) headquarters building, the agency responsible for issuing Federal Employer Identification Numbers (FEINs) to businesses.
Who Needs a FEIN?
While the name includes “Employer,” you don’t necessarily need to have employees to require a FEIN. Here’s a breakdown of who generally needs to obtain a FEIN:
- Businesses with Employees: If you hire employees, you’ll definitely need a FEIN to report payroll taxes and comply with employment tax regulations.
- Corporations and Partnerships: Most corporations (both C-corps and S-corps) and partnerships are required to obtain a FEIN, regardless of whether they have employees.
- Limited Liability Companies (LLCs): LLCs with more than one member are generally classified as partnerships and need a FEIN. Single-member LLCs may also need a FEIN, especially if they elect to be taxed as a corporation or have employees.
- Non-profit Organizations: Non-profit organizations require a FEIN to open bank accounts, apply for tax-exempt status, and fulfill various operational requirements.
- Estates and Trusts: Estates and trusts that operate a business after the death of the person they represent also need a FEIN.
- Sole Proprietorships: While not always mandatory, sole proprietors often need a FEIN to open business bank accounts or if they plan to operate under a business name different from their own name. Even if you operate as a sole proprietorship without employees, you might still be required to register with your state and may be requested to provide a FEIN when opening a business bank account.
Obtaining a FEIN: A Step-by-Step Guide (General Process)
The process of obtaining a FEIN is handled directly by the IRS. While specific steps might vary slightly depending on your state and business structure, here’s a general outline:
- Determine if You Need a FEIN: Review the categories above to see if your business or organization requires a FEIN. If you are unsure, it’s often best to apply for one to avoid potential complications later.
- Complete IRS Form SS-4: The application for a FEIN is done using IRS Form SS-4, “Application for Employer Identification Number.” You can download this form from the IRS website (https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers).
- Submit Your Application to the IRS: You can apply for a FEIN in several ways:
- Online: The IRS offers an online FEIN application process which is the quickest method. You can get your FEIN immediately upon successful completion.
- By Phone: You can apply by phone by calling the IRS Business & Specialty Tax Line at 1-800-829-4933 (check the IRS website for current hours of operation).
- By Fax or Mail: While available, these methods are slower. You can fax or mail Form SS-4 to the IRS, but it will take longer to receive your FEIN.
Important Considerations for Specific Locations (Example: Maryland)
In some cases, like in Maryland as mentioned in the original article, there might be a multi-step process involving state and federal agencies. For instance, in Maryland, you may first need to register your business with the Department of Assessments & Taxation before applying for a FEIN from the IRS. This state department will issue its own identification number, which is different from the FEIN.
After obtaining your FEIN from the IRS, you might then need to register with the Maryland Comptroller’s Office for state tax purposes, using both your FEIN and the state-issued identification number. Always check with your specific state’s business registration requirements to ensure you are following the correct procedures. You can often find this information on your state’s government website, such as the Maryland Comptroller of the Treasury’s website (http://taxes.marylandtaxes.com/Business_Taxes/New_Businesses/).
Why is a FEIN Essential?
Having a FEIN is crucial for various business operations and compliance requirements:
- Opening Business Bank Accounts: Banks typically require a FEIN to open business accounts for entities other than sole proprietorships operating under their own name.
- Filing Business Taxes: The FEIN is necessary for filing federal business tax returns, including income tax, employment tax, and excise tax.
- Obtaining Business Licenses and Permits: Many jurisdictions require a FEIN to issue business licenses and permits.
- Establishing Business Credit: A FEIN helps establish creditworthiness for your business, separate from your personal credit.
- Hiring Employees: If you plan to hire employees, you absolutely need a FEIN for payroll and tax purposes.
In Conclusion
Understanding what a FEIN is and how to obtain one is a fundamental step in setting up and running a business or organization. It’s your business’s federal identification number, necessary for banking, taxes, and various legal and operational aspects. By following the steps outlined by the IRS and being aware of any state-specific requirements, you can easily secure your FEIN and ensure your organization is properly identified and compliant. Always refer to the official IRS website (https://www.irs.gov/businesses) for the most up-to-date information and guidance.
