There is an unfortunate amount of confusion surrounding the concept of the Federal Tax Identification Number. It is ironic, because the whole Tax ID, FEIN, and EIN thing is actually very simple, mostly because they are generally all the same thing. However, it isn’t surprising that this concept confused many personal finance students because when it comes to things like laws and taxes, tiny variations in terms usually mean very different things.
What is a Tax ID Number?
Tax ID Number, or Tax Identification Number (TID), and the like, all refer to the same thing. When taxes are filed, whether they are personal income taxes, or business income taxes, there must be a unique identifier used on the tax return. Likewise, if income is reported, that income must be reported to the IRS with a unique number identifying who it was paid to.
In the case of Federal Income Taxes, the tax ID number is a Social Security Number. However, businesses do not have SSN, so they need a different unique number to use for identification purposes on tax documents.
FEIN stands for Federal Employer Identification Number. It’s “brother” is the EIN which stands for Employer Identification Number.
What Is The Difference Between an EIN and a FEIN?
Let’s start with the easiest part of the tax number concept to understand. There is no difference between a FEIN and a EIN.
To be more technically correct, there is no such thing as a FEIN. While there may be State-based employer identification numbers, the Federal Government makes no allowance for them in its official terminology or within the tax code. Thus, if someone is talking about Federal and state tax ID numbers, then they are technically discussing Employer Identification Numbers (EIN) and State Employer Identification Numbers. In other words, there is no “Federal” label for official purposes.
The arbiter of all taxable information and tax numbers is the Internal Revenue Service. No one else counts when it comes to Federal Income Taxes. It is not surprising then, that the IRS issues EINs or Federal Tax Identification Numbers.
Do I Need an EIN (Employer Identification Number)?
For many entrepreneurs, their small business is a separate legal entity. Such a business structure limits personal liability for small business owners. Whether it is via a S Corp, Limited Liability Partnership (LLP), or Limited Liability Company (LLC). In some cases, a business tax ID number is required. In others, it can be optional.
The thing that throws most people and generates plenty of questions for those who provide personal financial advice and tips, is the word “employer.” Many entrepreneurs have small businesses which have no employees, or only family members as employees. Thus, the inevitable question is whether or not such a business requires an EIN.
Despite the name, an EIN is merely an identification number used for tax purposes. While only businesses with employees are required to get an EIN, businesses without employees can use them as well.
In fact, every small business owner should get an EIN tax ID number whether they have any employees or not. This is not only good business practice, it is also very necessary in order to protect privacy and prevent identity theft.
Whenever a business pays more than $600 in a calendar year to a business, whether a small business or otherwise, they are required to report that payment to the IRS. To do so, they must file an IRS form that, not surprisingly, requires the recipient’s tax ID number to be listed. As a small business owner, you have two choices:
- Use Your Own Social Security Number
- Use a Tax ID Number or EIN
It shouldn’t be rocket science why you don’t want to be handing your SSN out all over the place. Obviously, if your business is a small sideline thing and you only do work for people you know and trust, or well-known reliable companies, then the risks are lower. However, the fewer places you can give out your social as you go through life, the better.
How To Apply for FEIN or EIN Tax Number
You can apply for a state tax id number with your state’s Secretary of State office. You can apply for an EIN online directly via the IRS.
Look Up FEIN or EIN Online
Unfortunately, the IRS does not provide a way for you to look up your EIN online at irs.gov. Instead, you can call the IRS to search for your EIN by calling the Business & Specialty Tax Line. The phone number for IRS there is 1-800-829-4933. They are open from 7:00 am to 7:00 pm Monday-Friday. If the thought of calling the IRS gives you hives, you aren’t alone. Fortunately, there are better ways to find your EIN fast.
Obviously, when you get the letter from the IRS with your EIN on it, you should put it in your permanent records. Keeping permanent doesn’t have to mean holding onto a piece of paper. Your business should have some sort of electronic recording keeping. I use a Canon all in one printer (mf634cdw – the new one is mf734cdw – you can get a cheaper one if you don’t need color) that I found super-marked down at Office Depot that is within arms reach of my desk, but as long as you get good quality and tag or file the images so you can find them later, you can use your cell phone camera.
No matter what system you use, make sure it is backed up so that you can produce your IRS records for three years. If you don’t want to figure anything else out, buy a brand-new USB drive and back your tax records up at the end of the year, and then again after you file.
If you can’t find your paper, or you just don’t have time to look at it, it will be faster to call your bank where you have your business checking account set up. They will have wanted your EIN when you signed up for the account, so they’ll have it. You can lookup your EIN online if your bank’s online banking portal provides it there, free, cheap, easy, and fast.
If you can’t find your EIN letter, but you can find last year’s taxes (or any year you filed a Schedule C) your small business EIN is on there as well.
About The Author
By Brian Nelson – Brian is a former Certified Financial Planner and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended for financial or tax advice. ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own tax professional when making decisions regarding your tax situation.