Do You Need an EIN to Avoid an Inheritance Tax?

Instead of assigning Social Security numbers to companies, the IRS assigns Employer Identification Numbers. An individual doesn't need an EIN, and it won't help you avoid paying tax on your inheritance. However, only a handful of states charge an inheritance tax, fewer than half the states charge an estate tax and most of those states exempt the first $1 million or more from taxes.

Employer Identification Number

Just as you have a Social Security number that you use to identify yourself when you file your taxes, a company has an Employer Identification Number, or EIN, that it uses to identify itself when it files its tax returns. A new company can apply for an EIN online at the IRS website. The sole proprietor of a small business without employees who files Schedule C for business income and expenses can choose to use his Social Security number instead of an EIN.

Federal Estate Tax

The federal government does not have an inheritance tax, but it does have an estate tax. However, at the time of this publication, the first $5,340,000 you inherit from an estate is exempt from the tax. Consult current sources for up-to-date data. You do not need to own a company or have an EIN to qualify for the federal estate tax exemption.

State Inheritance Tax

Although you won't pay a federal inheritance tax, if you live in Illinois, Iowa, Kentucky, Nebraska, Pennsylvania or Tennessee, you might pay state inheritance taxes as of the time of this publication. Each state's laws are very different. For example, you're exempt from the tax in Kentucky if you inherit property from an immediate family member such as your parents, your brother or your sister. In Tennessee, you only pay tax if you inherit more than $1.5 million. Iowa and Pennsylvania charge up to 15 percent tax and have no exemptions at all. You do not need an EIN to qualify for a state exemption from state inheritance taxes.

State Estate Tax

Like the federal government, almost half the states and the District of Columbia levy an estate tax. In most states, however, the tax only applies to the very rich. For example, the exemption cut-off is $5.25 million in Delaware; $4 million in Illinois; $2.5 million in Vermont; $2 million in Connecticut, Maine, Tennessee and Washington; $1 million in Maryland, Massachusetts, Minnesota, New York, Oregon and Washington, D.C.; $910,000 in Rhode Island; and $675,000 in New Jersey at the time of this publication.

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About the Author

Steve McDonnell's experience running businesses and launching companies complements his technical expertise in information, technology and human resources. He earned a degree in computer science from Dartmouth College, served on the WorldatWork editorial board, blogged for the Spotfire Business Intelligence blog and has published books and book chapters for International Human Resource Information Management and Westlaw.

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