What is a Federal Tax ID Number?

A federal tax ID number is also known as an Employer Identification Number (EIN) and is by businesses to open a bank account, hire employees, apply for business licenses and permits, and pay federal taxes.

Author: Douglas Wade, Attorney

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For a company, your federal tax ID is your Employer Identification Number (EIN). Your company will need a federal tax ID to do any of the following:

Uses a Keogh Plan (a tax-deferred pension plan)
Withholds taxes on income, other than wages, paid to a non-resident alien
Files tax returns for employment, excise, or alcohol, tobacco, and firearms
Pays employees
Operates as a corporation of partnership
Open a bank account

Federal Tax ID Number is the same as an Employer Identification Number, even though the terms differ. The Internal Revenue Service (IRS) uses Federal Tax ID Numbers to correctly identify companies. The number consists of nine digits arranged as 12-3456789, and the IRS uses this number to recognize the tax accounts of various US businesses.

In this article, our Los Angeles business attorney will discuss federal tax ID as follows:

1. Why Do Companies Need A Federal Tax ID?

2. What Do Company Owners Use A Federal Tax ID For?

3. How Do Businesses Apply for Federal ID Numbers?

4. What Companies Need a Federal Tax ID Number?

5. Can a Business Operate Without Federal Tax ID Number?

6. Is it Possible to Reapply for a new Federal Tax ID Number?

7. How Can Business Owners Look Up Federal Tax ID Numbers?

8. How Can Businesses Find Other Companies’ Federal Tax ID Numbers?

9. How Can Companies Cancel Their Federal Tax ID?

Why Do Companies Need A Federal Tax ID?

A federal tax ID is is used mainly for tax purposes. The IRS requires any registered company with businesses, partnerships, employees, corporations, or that files excise, employment, or alcohol, firearms, and tobacco tax returns to have an EIN.

What Do Company Owners Use A Federal Tax ID For?

Businesses use federal ID number for, among other things:

Open business bank accounts
Apply for business loans
File legal documents
File taxes
Obtain a business license

Federal ID Numbers also make separating personal and business taxes more manageable, and they are often required to open business bank accounts or apply for licenses and permits.

How Do Businesses Apply for Federal ID Numbers?

The application process for an EIN is easy and can be completed online via the IRS website. Applying can also be done by fax or mailing a completed Form SS-4 to the IRS. Sole proprietors without employees do not need EINs because the IRS does not require it.

What Companies Need a Federal Tax ID Number?

Companies needs an federal tax ID number if they:

Withhold taxes on income considered non-wage and paid to an alien who is also not a resident

Employ workers

Operate as a partnership or corporation

Are involved in an estate, a trust, a nonprofit, a real estate investment channel, a farmer’s cooperative, or a plan administration

File excise, employment, or alcohol, firearms, and tobacco tax returns

Use a Keough Plan.

Can a Business Operate Without Federal Tax ID Number?

If a business is a corporate entity, it must obtain a federal ID number. Without a federal tax ID, the company cannot open a bank account, file tax return, and pay tax. A person who operate a business that is not a corporate entity does not need a federal ID number. If a sole proprietor does not have a Federal Tax ID Number and decides to use their SSN for professional uses, they must agree to give their SSN to other parties and even use it online.

Is it Possible to Reapply for a new Federal Tax ID Number?

Rather than amending an existing Federal Tax ID Number, the IRS asks businesses to reapply for their EIN. The application process for a new EIN is the same as the first.

Why would a business need to reapply for a new Federal Tax ID Number?

The business changes its structure; for example, it incorporates
The company owner buys or inherits a new company
The business owner creates a trust with estate funds
The company is part of a bankruptcy

How Can Business Owners Look Up Federal Tax ID Numbers?

Contact the IRS

When a business cannot identify its federal ID number, it should contact the IRS. The company should first ensure that an authorized person is making the call, such as a partner, a corporate officer, or the sole proprietor.

How Can Businesses Find Other Companies’ Federal Tax ID Numbers?

Sometimes, companies look up a business’s federal ID number to check its legitimacy before doing business. If the company in question is publicly traded and registered with the Securities and Exchange Commission (SEC), the business can use the SEC’s Edgar system. This tool allows businesses to search out other companies’ EINs for free.

Finding federal tax ID for company that did not register with the SEC is more difficult, but it is not impossible. Here are some strategies that may help:

Contact the business’s financing or accounting office and ask for their EIN. Note that they are under no obligation to provide it

Use a paid database or hire a service

Search for the business on the website of the secretary of state, or search for other federal filings online

How Can Companies Cancel Their Federal Tax ID?

Sometimes, businesses apply for Federal Tax ID numbers and realize it is unnecessary, considering their specific circumstances. Other times, companies shut down.

In cases like these, closing the company’s business account with the IRS is the only option.

Companies that have never used federal tax ID number can send a letter to the IRS addressing this issue. It should include the company’s legal name, the business’s address, and the reason the account must be closed.

Companies that have already filed a tax return with their federal ID number must file one final return. After that, the IRS can close the account. Companies without revenue or expenses over the prior year must file the last return. Be sure to check the box that marks the return as final.

Once the IRS assigns a specific federal ID number to one business, it never reassigns it. As a result, the federal tax ID number remains the permanent federal identification number for that business, even if it is defunct.

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