How to Get a Tax ID Number for an LLC
One of the steps of forming an LLC is to figure out how to get a tax ID number for an LLC which is used by the IRS for federal tax purposes.3 min read
Updated October 29, 2020:
One of the steps of forming an LLC is to figure out how to get a tax ID number for an LLC. A tax ID number, also known as an “employer identification number,” is used by the Internal Revenue Service (IRS) for federal tax purposes. Every LLC must have its own unique tax ID number.
What is an LLC?
An LLC, or limited liability company, is a type of business structure that is a combination between a partnership or sole proprietorship and a corporation. It features the “pass-through” taxation of a partnership and sole proprietorship, and the personal liability protection of a corporation. These features are what make an LLC so attractive to all types of businesses.
Owners, or “members,” of an LLC are protected against any personal liability for any of the financial debts or legal liabilities of the company. Limited liability protection shields the members’ personal assets from any of the LLC’s creditors, and is one of the main reasons why LLCs are the most popular type of business structure in the U.S. Members can be individuals or any other type of business entity, such as partnerships or corporations; there are also LLCs that are just owned by a single person.
An LLC is considered a “pass-through” entity. This simply means that the LLC’s income and losses will pass through to the individual members’ personal tax returns. Thus, the members are only paying taxes on their profits from the LLC one time. Members of an LLC also have the flexibility of choosing how they want the LLC to be taxed. For instance, they can elect to be taxed as a sole proprietorship or an S corporation.
Forming an LLC
LLCs are governed by state law. Therefore, the requirements for forming and maintaining an LLC will vary depending on which state the LLC registers with. If the LLC is going to register in more than one state, it is important that the owners understand the unique requirements of each state in order to fully comply with the law.
There are several steps to forming an LLC, including obtaining a tax ID number. As stated above, each state has its own regulations governing the formation of an LLC. Hence, it is important that the members meet all of these obligations in order to comply with state and federal tax laws.
What is a Tax ID Number and What is it Used For?
A critical step in forming an LLC is to obtain a tax ID number with the IRS. This ID number is essentially like a business’s social security number. It is used by the IRS to identify the business for federal tax and banking purposes.
It should be noted that before an LLC can obtain a tax ID number, it must be formed and registered in a state. To obtain a tax ID number, the LLC owner can apply directly through the IRS website. Any LLC that has two or more members, or has employees, must obtain a tax ID number. If a single-member LLC adds a new member, or hires its first employee, it must also apply for a tax ID number. An LLC with only a single member can use that member’s personal social security number instead.
How to Apply for a Tax ID Number
When applying for a tax ID number, the IRS website will ask a series of questions that require knowledge of the business and its owners, such as:
- Each owner’s social security number
- The purpose of the filing
- rejected income, etc.
You can apply for a tax ID number either electronically, by phone, through the mail, or by fax.
After you answer those questions, you will need to designate a “responsible party.” Even if an LLC has multiple members, there can only be one responsible party for purposes of getting the tax ID number.
Once you have completed the required steps, the IRS will send you a confirmation email that will contain the LLC’s tax ID number. In addition, an official confirmation letter sent by the IRS through traditional mail will follow that contains the relevant tax ID documents. The LLC should be sure to keep these in a safe, private place for security purposes.
If you need help getting a tax ID number for an LLC, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5-percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with, or on behalf of companies like Google, Menlo Ventures, and Airbnb.