The New York State Tax ID and federal tax ID are two separate identification numbers used for tax purposes. The New York State Tax ID is specifically used for tax purposes within New York State, while the federal tax ID (also known as an Employer Identification Number or EIN) is used for federal tax purposes. Both are important for businesses and organizations operating in New York to have.
What is a New York State Tax ID?
A New York State Tax ID, also sometimes referred to as a NYS Sales Tax ID, is a unique 10-digit number that is used to identify a business or organization for state tax purposes in New York. It allows a business or organization to collect and remit the proper New York sales tax, withhold state income tax from employees’ wages, and file required state tax returns.
Some examples of when a New York State Tax ID is required:
– Registering a business in New York
– Collecting/remitting NY sales tax
– Employers withholding NY state income tax from wages
– Remitting other NY state taxes (such as excise taxes)
The Tax ID is obtained by submitting a formal application to the New York State Department of Taxation and Finance. Once issued, it should be included on all tax returns and correspondence with the state.
What is a Federal Tax ID (EIN)?
A federal tax ID, also known as an Employer Identification Number (EIN), is a unique 9-digit number assigned by the Internal Revenue Service (IRS) to identify a business or organization for federal tax purposes. It is used instead of using an individual’s Social Security Number.
Some examples of when a federal EIN is required:
– Employers paying wages to employees
– Businesses and organizations with employees
– Partnerships, corporations, LLCs, trusts, and estates
– Businesses collecting/remitting federal excise taxes
– Businesses required to file federal tax returns (such as income tax returns)
An EIN can be obtained by applying online or submitting Form SS-4 to the IRS. The EIN should be used on all federal tax documents and returns.
Differences Between New York State Tax ID and Federal EIN
While both are used for tax purposes, there are some key differences between the New York State Tax ID and federal EIN:
Issuing Agencies
– New York State Tax ID: Issued by NY State Dept of Taxation and Finance
– Federal EIN: Issued by the Internal Revenue Service (IRS)
ID Format
– NYS Tax ID: 10 digits
– Federal EIN: 9 digits
Tax Purposes
– NYS Tax ID: For tax purposes within NY State
– Federal EIN: For federal tax purposes
Required For
– NYS Tax ID: Registering business in NY, collecting NY sales tax, NY income tax withholding
– Federal EIN: Federal income tax returns, employing workers, federal excise taxes
So in summary, the New York State Tax ID is specifically for tax activities within New York, while the federal EIN is for federal taxes and purposes nationwide. A business needs both if operating in New York.
Does a Business Need Both a New York State Tax ID and a Federal EIN?
If a business or organization is operating in New York State, then it will likely need to obtain both a New York State Tax ID and a federal EIN. Some key points:
– New York State Tax ID is mandatory for all businesses operating in NY, in order to register the business with the state, collect/remit sales tax, withhold state income tax, and file state returns.
– Federal EIN is mandatory for any business or organization with employees, to report payroll and other federal taxes.
– Partnerships, corporations, LLCs, trusts are required to obtain a federal EIN for federal tax purposes.
– If selling products/services in NY, both a NYS Tax ID and federal EIN are required to properly collect, report, and remit the associated taxes.
So in general, both IDs are required for businesses physically located or selling within New York State. There are some exceptions – for example, a very small sole proprietorship with no employees may only need a federal EIN. But in most cases, every business operating in New York needs both.
When is only one required?
In limited circumstances, a business may only need one ID and not the other:
– Sole proprietorships or single member LLCs with no employees or excise tax liability may only need a federal EIN.
– Businesses located outside NY only making occasional sales into NY may only need a NYS Tax ID to collect sales tax.
But in most situations, it is recommended for businesses operating in New York to obtain both for full state and federal tax compliance. The only real exception is a business with no physical presence or sales in New York – then only a federal EIN would be needed.
How to Obtain a New York State Tax ID and Federal EIN
Applying for and obtaining a New York State Tax ID and federal EIN are two separate processes, through different agencies. Here are the steps for each:
Obtaining a New York State Tax ID
To obtain a NYS Tax ID, you must submit a formal application to the NYS Dept of Taxation and Finance. This can be done:
– Online via the department’s website
– Mailing in a paper Form DTF-17
– Faxing in Form DTF-17
– Applying in person at a local department office
The application form requires basic business information such as legal name, address, owners/officers, and business activities.
It typically takes up to 2 weeks after submitting the application to receive the official NYS Tax ID number.
Obtaining a Federal EIN
To obtain a federal EIN, you also submit a formal application, but to the IRS rather than NY state. This can be done:
– Online via the IRS website – quickest method
– Faxing or mailing Form SS-4 to the IRS
– Applying in person at an IRS office
The EIN application also requires basic business information.
When applying online, the EIN is typically issued immediately. Via mail/fax it may take 4 weeks or longer.
So in summary, both the NYS Tax ID and federal EIN require submitting formal applications with business details to the relevant agencies – online, mail, fax, or in person. The online process is quickest.
How are the New York State Tax ID and Federal EIN Used?
The New York State Tax ID and federal EIN are both used for tax purposes, but have some differences:
New York State Tax ID Uses
The NYS Tax ID is primarily used to:
– Register a business with the state of New York upon formation
– Collect and report New York sales tax on taxable sales
– Report and remit other New York taxes (such as excise taxes)
– Withhold NY state income tax from employees’ wages
– Report payroll taxes to New York
– File required NY state tax returns
It should be provided on all tax forms and communications with the NY Dept of Taxation and Finance.
Federal EIN Uses
The federal EIN is primarily used to:
– Report federal taxes for employees and businesses
– File business or organization tax returns with IRS
– Open business bank accounts
– Apply for business licenses and permits
It should be included on all official IRS forms, documents, and communications.
So in summary, the state Tax ID is specifically for New York tax purposes, while the federal EIN serves a wider range of federal tax and identification needs nationwide.
What Happens if You Don’t Obtain a Required Tax ID?
If a business or organization fails to obtain a required tax ID, either the New York State Tax ID or federal EIN, it can lead to serious consequences such as:
New York State Tax ID Consequences
– Inability to legally form or register a business in New York
– Failure to collect/remit NY sales tax – penalties of up to 20% of unpaid tax
– Inability to withhold state income taxes from employees
– Delinquent filing of NY tax returns – penalties of up to 25% of unpaid tax
– Getting business license or registration suspended or revoked
Federal EIN Consequences
– IRS penalties for failure to report payroll taxes – up to 10% of unpaid tax
– Penalties for late filing of business tax returns – 5% per month
– Getting business operations shut down for federal tax noncompliance
– Inability to properly open business bank accounts
– Difficulty obtaining business financing or licenses
As you can see, failure to obtain a required tax ID can result in very costly penalties, damaged business reputation, and even potential shutdown of business activities. It’s critical for businesses operating in New York to proactively obtain their proper NY state and federal tax IDs.
Can You Use a Social Security Number Instead of Tax ID Numbers?
In some very limited cases, it may be possible for certain small sole proprietors or individual contractors to use their Social Security Number instead of a tax ID. However, there are risks to this approach, and it is usually better to obtain the proper EIN and tax IDs.
Some key points on using SSN vs Tax IDs:
– Sole proprietorships without employees _may_ be able to use SSN for federal purposes instead of EIN. But there are drawbacks, including greater risk of tax fraud/identity theft. An EIN is recommended.
– You should _never_ use a SSN instead of a NYS Tax ID under any circumstances. Only the state Tax ID can be used for NY tax purposes.
– Single member LLCs should always obtain their own EIN – never use the owner’s SSN.
– Businesses with employees are _required_ to obtain an EIN – they cannot use a Social Security Number.
– SSNs should not be used for general business identification purposes in place of a Tax ID.
So in summary, except for a few sole proprietorship cases, most businesses should obtain their proper tax IDs instead of using Social Security Numbers. This reduces tax fraud risk and properly complies with reporting requirements.
Frequently Asked Questions
1. Do non-profit organizations need a NYS Tax ID and EIN?
Yes. Like any entity, non-profits operating in New York need to obtain both a state Tax ID and a federal EIN, even if they are tax exempt. This properly identifies the organization and allows tax exempt status to be recognized.
2. My business is based outside NY but sometimes sells into the state. Do I need a NYS Tax ID?
If you have physical nexus in NY (like employees, office, inventory), then yes you need one. If you have no physical presence but make sales into NY, you may just need the ID to collect and remit sales tax. Consult a tax pro to be sure.
3. I just formed an LLC. Do I need both a federal EIN and state tax ID?
Yes, as a newly formed LLC you are required to obtain both a federal EIN and a NY state tax ID. The EIN identifies you for federal purposes as an LLC, while the state ID is needed to register in NY and handle NY taxes.
4. Can I use the same number for my NYS Tax ID and federal EIN?
No, you cannot use the same ID number for both. They are two distinctly different identifiers, with different digit lengths, used for different purposes. You must obtain and use separate state and federal tax ID numbers.
5. Do I need an EIN if I will have no employees or just contract laborers?
If you have no employees at all, you may not need an EIN as a sole proprietorship. But other entities like LLCs always need their own EIN. Having contractors is irrelevant – contractors are not employees. The key factor is whether you will have formal W-2 employees.
Conclusion
In summary, the New York State Tax ID and federal EIN are separate identification numbers that serve different purposes for businesses operating in New York. The state Tax ID handles NY tax registration, sales tax, withholding, and filing, while the federal EIN is for federal tax purposes.
Nearly all organizations, including LLCs, corporations, partnerships, and non-profits need to obtain both a NYS Tax ID and a federal EIN if physically operating or making sales in New York State. They cannot be used interchangeably, and having proper ID numbers is crucial for legal compliance and avoiding penalties.
Both a NYS Tax ID and federal EIN can be obtained by submitting applications to the relevant agencies, either online, by mail/fax, or in person. Most businesses should take the necessary steps to legally obtain both identifiers.
