Startup Basics: Federal and State Tax ID Numbers

State and federal tax ID numbers (also known as an Employer Identification Number or EIN) are like a personal social security number for your business. They let your small business pay state and federal taxes.

A federal EIN is used by the U.S. Internal Revenue Service to identify a business entity. This 9-digit number is required to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits.

An EIN is required for most businesses, including, but not limited to, those that have employees and those that operate as a corporation or partnership.

It's free to apply for an EIN, and you should do it right after you register your business. Business owners can apply for an EIN via an online form or by completing Form SS-4 and submitting it by fax or mail. Online applicants will receive an EIN immediately; applications submitted by fax or mail may take several weeks to process. The IRS recommends applying far enough in advance to ensure that the number has been issued before it is time to file a return or make a deposit.

All EIN applications must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner, or trustor. This individual, which the IRS calls the “responsible party,” controls, manages, or directs the applicant entity and the disposition of its funds and assets. (Unless the applicant is a government entity, the responsible party must be a person, not an entity.)

Generally, businesses need a new EIN when their ownership or structure has changed.

The need for a state tax ID number ties directly to whether your business must pay state taxes. Visit your state's website to identify whether you need to get a state tax ID number in order to pay state taxes. You will need your federal EIN in order to apply for the state tax ID number.

If your company regularly operates in Illinois or employs people who live there, you will need to obtain a tax ID number from the Illinois Department of Revenue. This ID number is used to pay Illinois income, sales, and use taxes, as well as the amounts withheld from employee wages for Illinois individual income tax and unemployment insurance. Illinois issues the ID number based on the information you enter on Form REG-1 (the Illinois Business Registration Application); businesses that pay specialized kinds of taxes (eg, cigarette, liquor, telecommunications) will be required to file additional schedules.

For more on these and other topics, consider registering for the NaperLaunch Academy Workshop series. In addition, business librarians, NaperLaunch coaches, and SCORE mentors are available for one-to-one mentoring sessions.

Posted: 
Monday, April 19, 2021 - 10:00