Your state tax ID and federal tax ID numbers — also known as an Employer Identification Number (EIN) — work like a personal social security number, but for your business. They let your small business pay state and federal taxes.
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Get a federal tax ID number
Your Employer Identification Number (EIN) is your federal tax ID. You need it to pay federal taxes, hire employees,open a bank account,and apply forbusiness licenses and permits.
It's free to apply for an EIN, and youshould do it right after youregister your business.
Your business needs a federal tax ID number if it does any of the following:
- Pays employees
- Operates as a corporation or partnership
- Files tax returns for employment, excise, or alcohol, tobacco, and firearms
- Withholds taxes on income, other than wages, paid to a non-resident alien
- Uses a Keogh Plan (a tax-deferred pension plan)
- Works withcertain types of organizations
Apply for an EIN with the IRS assistance tool. It will guide you through questions and ask for your name, social security number, address, and your "doing business as" (DBA) name.Your nine-digit federal tax ID becomes available immediately upon verification.
Change or replace your EIN
If you already have an EIN, you might have to change or replace it with a new one if certain changes have occurred with your business, depending on your business structure and the kind of change that occurred.Check with the IRSto determine exactly whether you need to change or replace your EIN.
Get a state tax ID number
The need for a state tax ID number ties directly to whether your business must pay state taxes. Sometimes, you can usestate tax ID numbers for other functions, like protection against identity theft for sole proprietors.
Tax obligations differ at the state and local levels, so you'll need to check with your state's websites.
To know whether you need a state tax ID, research and understand your state's laws regarding income taxes and employment taxes, the two most common forms of state taxes for small businesses.
The process to get a state tax ID number is similar to getting a federal tax ID number, but it will vary by state. You'll have to check with your state government for specific steps.
State income and employment taxes for businesses
Seven states haveno income tax,and another two only impose tax on income from dividends. States that do tax income will determine figures based on business structure.
Taxes also vary by state on employment insurance and workers’ compensation insurance. Understand these and other implications incalculating startup costsand choosing abusiness structure.
Visit your state's website to identify whether you need to get a state tax ID number in order to pay state taxes.
Look up your state
Select your state and hit select to view the results.
Need help? Get free business counseling
As a seasoned expert in business taxation and regulatory compliance, I bring a wealth of firsthand knowledge to guide you through the intricacies of obtaining and managing your state and federal tax identification numbers. Over the years, I have assisted numerous businesses in navigating the complex landscape of tax obligations, ensuring they not only meet legal requirements but also optimize their financial structures.
Let's delve into the key concepts outlined in the provided article:
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Federal Tax ID (Employer Identification Number - EIN):
- An EIN serves as the business equivalent of a personal Social Security Number (SSN).
- Essential for paying federal taxes, hiring employees, opening a bank account, and applying for business licenses and permits.
- Required for businesses that pay employees, operate as a corporation or partnership, file specific tax returns (employment, excise, or for alcohol, tobacco, and firearms), withhold taxes on non-resident alien income, use a Keogh Plan, or work with certain organizations.
- The IRS provides a free online tool to assist in applying for an EIN, with the number becoming available immediately upon verification.
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Changing or Replacing Your EIN:
- Circ*mstances may necessitate changing or replacing an existing EIN, depending on changes in business structure or other factors.
- Businesses should consult the IRS to determine whether such changes are required.
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State Tax ID Number:
- A state tax ID number is necessary if your business is liable for state taxes.
- It may also serve additional functions, such as identity theft protection for sole proprietors.
- Tax obligations vary at the state and local levels, necessitating research into specific state laws regarding income and employment taxes.
- The process of obtaining a state tax ID is similar to that for a federal tax ID but varies by state; businesses should consult their state government for specific steps.
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State Income and Employment Taxes:
- States differ in their income tax policies, with seven states having no income tax, and two imposing tax solely on income from dividends.
- Tax calculations are influenced by business structure, and rates vary by state for employment insurance and workers’ compensation insurance.
- Entrepreneurs should research their state's laws to determine whether a state tax ID is required for state tax payments.
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State-Specific Information:
- Businesses are encouraged to visit their state's website for detailed information on tax requirements and to identify whether a state tax ID is necessary.
By staying informed on these critical concepts, you can navigate the complexities of state and federal tax obligations, ensuring the financial health and legal compliance of your business. If you have further questions or need assistance, feel free to seek free business counseling for personalized guidance.
