The Internet explosion has many individual entrepreneurs rushing their business online. Accompanying this excitement are a host of forms, regulations and taxes at the local, state and federal level. A tax ID number is one way the federal government makes sure it gets its share of the money-making pie.
What Is a Federal Tax ID Number?
A federal tax ID number or Employee Identification Number (EIN) is used by the IRS to identify a business for tax collection.
No EIN Necessary
If you work for yourself as a sole proprietor, you do not need an EIN. Instead, use your Social Security Number to identify yourself to the government or other businesses.
EIN Needed
You need an EIN if you have a partnership or corporation; hire employees; deal with alcohol, tobacco and firearms; or are a non-profit, trust or estate.
Business versus Personal
An EIN can help keep your financial life in order. Get one if you want to separate your business accounts and transactions from your personal finances.
Security
Online business providers require an ID number when paying you for goods or services. Revealing your social security number exposes your personal, permanent government ID to the risk of Internet hacking and fraud. Giving an EIN instead transfers that exposure to a business, whose ID is easy to change.
Applying for an EIN
The IRS website provides an easy-to-use online application for getting an EIN for free. As a bonus, the form uses interview questions to help you decide whether you require this type of ID.
