OPENING A BUSINESS IN CALIFORNIA: Part 3
Obtaining a Federal Tax I.D. Number
This is the third in a series of
articles written for the purpose of assisting persons who intend to start a
business in California California
Third Step: The Federal Employer Identification Number.
The federal employer identification
number (EIN) is a 9-digit number assigned to corporations, partnerships, sole
proprietorships estates, trusts and other entities for tax filing and other
purposes. As a business, an EIN is
necessary before you can hire employees, pay taxes and even open a bank
account. Moreover, the federal employer
identification number is often easier to get than a social security number and
some foreign nationals use it instead of a social security number. Although not approved by the government, it
is sometimes used as a way around the difficulty that non-citizens who are
self-employed and cannot obtain social security numbers.
The federal employer identification
number is your business’ form of identification with the government. It is the number listed on the federal tax
return for your business. It is also
listed on the employee payroll reports the business files with the federal
government, if you have employees. And
you may wish to give this number – rather than your social security number – to
the bank to associate with your business bank accounts.
A business entity needs only one
EIN, no matter how matter different types of business it does or locations it
has. However, if a sole proprietor or
partnership incorporates, it needs to obtain a new EIN.
Contrary to many mistaken beliefs
about employer identification numbers, they do not result in higher taxes or
any special fees for businesses who obtain them. The process of getting one is free and does
not require a lawyer. Moreover, they are
required by law for most businesses. Partnerships,
LLCs, and corporations need employer identification numbers whether they have
employees or not. Only sole proprietors
with no employees do not need employer id numbers because they can use their
own Social Security number instead.
The federal employer identification
number is obtained through the Internal Revenue Service (IRS). There are three ways to get the EIN: on line,
by fax or by mail.
To get the number on line, simply
go to www.irs.gov/businesses. Click “Employer ID Numbers” under
“Topics”. Follow the easy instructions
stated there. You can obtain a EIN
immediately.
The IRS has also set up an easy
system whereby you can get your employer identification number by phone. You
simply call the special IRS telephone number set up for this purpose. You need to prepare the application form in
advance – it is IRS Form SS-4. The
person calling must be authorized to sign the form or be an authorized designee
of that person. When you call the IRS,
you simply provide the pertinent information from the IRS form and you will get
your federal employer identification number immediately, over the phone. Then you simply send in the completed SS-4
form or fax it to the IRS Service Center with the employer identification
number filled in on the form.
As mentioned above, the federal employer
identification number is sometimes used by immigrants in business here who
cannot obtain a social security number.
As most foreign nationals know, the U.S. Social Security Administration
has greatly limited the ability of non-citizens to get a social security number
now. Permanent residents can get them,
as can persons on temporary visas which provide the right to work in the U.S.
The EIN can be obtained by persons
who have a business here in lieu of a social security number. This is often used by persons without a
social security number to open a business, open a bank account and pay
taxes. While the government does not
condone this behavior, it is widely done.
In short, the federal employer identification
number is an easy-to-obtain, useful and even necessary tool for any business in
California
CHRISTOPHER A. KEROSKY of the law firm of KEROSKY PURVES & BOGUE has practiced law for over 25 years and has been recognized as one of the top lawyers in Northern California for 10 years by “Super Lawyers” www.SuperLawyers.com . He graduated from University of California, Berkeley Law School and was a former counsel for the U.S. Department of Justice in Washington D.C. His firm has offices in San Francisco, Los Angeles and 7 other locations in California.
