Just like your Social Security number is assigned to you specifically and used to identify you for employment, taxation and other purposes, a federal employer ID number identifies your business to the IRS. A business must apply for a federal employer ID number before it can issue Form W-2s for employees.
Federal Employer ID Number Requirements
Certain sole proprietors, LLCs and S corporations don't have to obtain a federal employer identification number. Any business that has employees, however, must apply for one. A business also must obtain an employer identification number if any of the following criteria apply:
- The business is a corporation, partnership, trust, estate, REIT, nonprofit organization, farmers cooperative or a plan administrator.
- The business withholds income taxes paid to a nonresident alien.
- The business files employment, excise or alcohol, tobacco and firearms tax returns.
- The business has a Keogh plan.
Federal Employer ID Numbers and Form W-2
A company must use its federal employer ID number to identify itself on payroll tax returns and annual Form W-2s. One copy of Form W-2 is sent to the employee to advise her of how much she was paid in wages and how much was withheld for taxes and retirement plans. Another copy of the form is sent to the IRS, and a third to the local government. The IRS matches the information on the W-2 with the employee's tax reporting and the employer's payroll tax return.
The business notes its federal employer identification number in box B of Form W-2 and its name and address in box C. According to the IRS, the identification number must be the same number the business uses for its payroll employment tax returns.
Business Owners with no Employer ID Number.
A business owner cannot use his personal Social Security number in lieu of an employer ID number. If you don't yet have a federal employer ID number, you must apply for one before you issue a Form W-2 to your employees. You can apply for the ID number online, by fax, by mail or by phone. If you've applied for an employer ID number but you haven't yet received it, write "Applied For" in box B.
Never include a fake employer ID number on a W-2. Willingly falsifying information to avoid taxes is considered fraud, which is a felony punishable by prison time or fines of at least $250,000.