Do I Need a Federal Tax Identification Number?

This is a familiar question a client or potential client will ask us.  Some of the more common situations in need of a tax identification number are:

• Starting a business that will have employees
• Having a corporation
• Having a qualified retirement plan with $100,000 or more of plan assets
• Opening an estate
• Having a trust that is required to file a tax return

If you have your own unincorporated business and don't have any employees, you are not required to have a federal tax identification number.  You can use your social security number. 

Even if you are not required to have a federal tax identification number, you may choose to get one.  Your bank may require it as a condition of opening a business bank account.  Also, when you render services to a customer, the party paying for the service is required to issue a Form 1099.  To properly complete Form 1099, the customer will request information such as your name, address and social security number.  If you have a tax identification number, you won’t be required to give out your social security number. 

How do you get a Federal Tax Identification number?   Complete IRS Form SS-4 (Application for Federal Tax Identification Number).  This number may be obtained by regular (snail) mail, fax, or online.

ACTION ITEM:  Understand when you are required to have a federal tax identification number and when it might be a good idea.

Thomas F. Scanlon, CPA, CFP®