Pennsylvania Tax ID (EIN) Number & Business Registration
Pennsylvania loves small businesses. If you’re looking to start a business in Pennsylvania, you’ll have plenty of places to choose from. Major metropolitan areas around Philadelphia and Pittsburgh occupy different ends of the state, and between, you’ll find plenty of small- to mid-sized cities your business could call home. There are currently more than 1 million small businesses in the state, comprising 99.6 percent of all businesses. Those businesses employ more than 2.5 million workers in the state, or 46.7 percent of the Pennsylvania workforce. The state has seen an increase of 47,140 net new jobs over the past year, despite Pennsylvania’s economic growth rate being slightly lower than the national average, at 3.2 percent. Pennsylvania’s Small Business Development Center is one of hundreds of organizations dedicated to helping entrepreneurs thrive in the state, and if you have the time to research them, there are hundreds of grants and loans available to entrepreneurs willing to seek them.
Steps to Obtain your Pennsylvania Tax ID & Business Registration:
- Business Formation in Pennsylvania
- Obtain your Federal Tax ID (EIN) Number
- Pennsylvania State Tax ID Number
- Pennsylvania Local Licenses and Permits
One of the biggest questions you’ll have to answer for your Pennsylvania business is how you’re going to structure it. You’ll have a handful of main options: sole proprietorships (businesses where you’re the only owner), partnerships (like sole proprietorships, but with more than one founding member), limited liability companies or LLCs (separate business structures designed to be pass-through entities), and corporations.
There are several factors you’ll need to consider when making this decision.
First, you could consider the complexity of the business you’re creating. Sole proprietorships and partnerships are by far the easiest business to start and manage, followed by LLCs. Corporations are more complex, but necessarily so; because they can issue publicly traded shares of the company, they’re subject to far more requirements and closer scrutiny from the government.
Next, you could consider the taxes you pay in each business. Sole proprietorships and partnerships make this simple; you’ll pay taxes as an individual on any money you make in the business. LLCs and corporations are treated as pass-through entities, however; these separate business entities will track their income and expenses independently. Only when the individual withdraws money or gets paid from these companies will the individuals be taxed. LLCs are responsible for paying a $520 fee for each LLC member when filing the required annual report for their company. Corporations (and LLCs being taxed as corporations) will be responsible for a flat corporate income tax rate of 9.99 percent in the state of Pennsylvania.
Finally, you can consider the amount of liability protection you’re afforded. Sole proprietorships and partnerships have virtually no liability shielding; you’ll personally take on any of your business’s debts, and may be vulnerable to legal issues. LLCs offer a bit more shielding, since they’re treated as separate legal entities, but for the best protection, you’ll need a corporation.
After you’ve decided on a business structure, you’ll almost certainly need to get an employer identification number (EIN), sometimes called a federal tax ID number. The only exceptions are certain types of sole proprietorships and single-member LLCs that aren’t hiring employees. If you hire any employees, you’ll need this number in place. You’ll also need one if you’re going to open an account in your business’s name, if you plan to build business credit, or if you’re going to apply for licenses and permits.
The easiest way to get a federal tax ID number is to apply for one online; you can use an online federal tax ID number obtainment service – simply answer a few questions about your business (including your business name, your name, address, and SSN), and your IRS Tax ID Number will arrive via email within an hour or less .
To make matters slightly more complicated, you may also need to have a Pennsylvania state tax ID number. Similar in nature to your federal tax ID, your Pennsylvania state tax ID is used to register your business with the state of Pennsylvania. It’s necessary if your business will owe sales taxes on goods and services sold in the state, excise taxes, or if you’ll be withholding taxes from your Pennsylvania employees’ paychecks.
An EIN and state tax ID number may not be enough for your business to begin legally operating in the state of Pennsylvania. Depending on the nature of your business, you may also need a special license, permit, or certification. These tend to apply to specific industries, such as construction or transportation, but the best way to find out whether your business needs one is to contact the Bureau of Professional and Occupational Affairs. It’s also a good idea to reach out to your local Chamber of Commerce; some cities in Pennsylvania have their own rules for business licensing, which may differ from those that exist at the state level.
With your tax ID numbers and the right licenses and/or permits, you’ll be one step closer to making your business idea a reality.