What is an EIN and Who Needs One?
When starting a business, there is plenty of paperwork, especially if you plan on incorporating a company or starting an LLC. Although some business structures like sole proprietorships and single-member LLCs do not require an EIN, it is always ideal to have one just in case you plan to expand and hire employees to work for you in the future.
An Employer Identification Number or EIN, also known as a Federal Tax Id Number (FTIN) or Federal Employer Id Number (FEIN), is like your Social Security Number (SSN), but for your business.
It is a unique nine-digit number that allows the IRS to identify your business for tax reporting. An EIN will also serve as your business ID and Tax Id Number. It is issued by the IRS for free.
Among the many benefits of getting an EIN, it will simplify the process of tracking and managing your business expenses. It will also enable your business to apply for a credit card and qualify for business loans. To understand further, let’s define what an EIN is.
What is an EIN?
As mentioned, a federal employment identification number will serves as your business ID, which is very similar to a personal SSN, and its main uses are for:
Opening business bank accounts
Building business credit
Without an EIN, you won’t be able to legally hire employees, report taxes, or open a business bank account under the name of your business. However, not all businesses are required to get an EIN.
Do all businesses need an EIN?
Not every business is required to get an EIN. However, if your business has employees, files excise taxes, withholds employment taxes for non wage income paid to a nonresident alien, or your business is a partnership or corporation, you will need to obtain an EIN.
Businesses that do not require an EIN
If your business entity is personal or a sole proprietorship without employees and does not file any excise tax or pension plan tax returns, then you are not required to obtain an EIN. However, if you have employees that work in your small business, you are still required to have an EIN.
If your business structure is an LLC with only one member, you don’t need to get an EIN. However, if you are going to hire employees, getting an EIN would be required.
Businesses that are required to have an EIN
You are required to have an EIN for tax purposes if you have an S or C corporation structure. Because corporations make more money in profits, have employees, and other withheld taxes, an EIN is required to report taxes to the IRS.
Partnerships or Multi-Member LLCs
Because partnerships and multi-member LLCs are required to file a partnership return and provide K1s to all of its members, these business structures are required to obtain an EIN.
Trusts and Estates
EINs are used for various types of trusts and estates under different circumstances.
Nonprofit organizations are also required to get an Employer Identification Number for tax reporting purposes.
How do you obtain an EIN?
Now that you have determined if your business needs to obtain an EIN, it’s time to get one from the IRS. Don’t worry, EINs are free to obtain from the IRS website and you can easily apply for one using the EIN assistant from Monday through Friday at 7am to 10pm EST.
The process is simple and easy. All you need to do is fill out a quick, online application and you’ll receive your EIN upon completion.
Before applying, you will need to determine if you are eligible to obtain an EIN. You can apply for an EIN if:
Your businesses is located in the United States or United States Territories
You or the person applying has a valid taxpayer identification number or SSN
After determining your eligibility, you must understand the EIN application.
You need to complete the online application in one session, meaning you cannot save and continue at a later time. Every session expires in 15 minutes of inactivity, so make sure you have all the information needed to fill out the form on hand to avoid starting over.
After filling out the form, you can submit the application and wait until the validations are done. And once you have been verified that you are eligible by the EIN assistant, you can download, save, and print your EIN confirmation notice.
You can also download the form here, fill it out, and mail it to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
You do not have to pay a filing fee, but the fastest way to obtain one is by requesting for one online.
Why do businesses need an EIN?
You may need to obtain an EIN for several reasons, including:
An EIN is required to hire employees. Whether you are hiring one or more, you will need to obtain an EIN and the IRS will use it to track your payroll and tax remittances. You also need it for paying for worker’s compensation and withholding income taxes on behalf of your employees.
Opening bank accounts and getting business credit
Almost every bank requires business owners to have an EIN before opening a business bank account. Having a separate bank account is an effective way to keep your personal and business finances separate, which is more efficient for budgeting for your business.
It will also help you build credit for your business. It will help you maintain financial stability and better credit can lead to lower interest rates, loan qualifications, and a better chance for expansion in the future.
Filing tax returns
You will need an EIN to file business tax returns for your business if it is structured as a multi-member LLC, a corporation, or if it is a sole prop with hired employees. Applying for one as soon as possible will prevent you from missing tax deadlines.
Preventing identity theft
Applying for an EIN instead of using your personal SSN for your business keeps your identity private and separate from the business. It can lower your risk of identity theft.
Does an EIN ever change?
The EIN is permanent. However, if you have multiple businesses, you will need one unique EIN for each of your businesses. EINs do not expire, and once it has been issued to an entity, the number cannot be reissued.
Tips to acquire an EIN
Apply online to get an EIN
If you want to apply for a new EIN and get it immediately, applying online is your best bet. Just visit the IRS website and look for the EIN assistant to get started. Make sure you are eligible and have all the information needed to obtain one in just under 15 minutes.
Have all the business details ready
When applying for an EIN online, make sure you have the business name, address, name of the principal owner, type of business, date the new business started or acquired, highest number of employees expected in the next year, and reason for applying for EIN.
There are more ways to apply
If you are not familiar with using computers, you can apply by filling out Form SS-4, and mail it to the IRS.
You can also apply by phone by calling the IRS at 267-941-1099. If you have a banker or accountant, they can also assist you with applying for an EIN.
How do I recover my EIN if I lose it or forget the number?
If you cannot find the number anywhere in your files or computer, you can simply call the IRS EIN department at 1-800-829-4933 and speak with one of their representatives. Just make sure you call during working hours. (Mon-Fri from 7am to 7pm)
How do I look up my EIN?
If you need to look up your EIN, there are several ways to do it. You can check the email the IRS sent you. You can also check business documents, such as your tax return, and you will find the EIN printed there.
What is the difference between an EIN and DUNS number?
An EIN number is issued by the IRS to track an existing businesses’ taxes.
The DUNS number is also a nine-digit number, but it is issued by Dun and Bradstreet to help entrepreneurs create and identify credit reports. If you ever wanted your business credit report, for example, you’d need a DUNS number. The DUNS number is optional.
Can non-residents and non US citizens apply for an EIN?
You can still obtain a federal tax identification number by downloading and filling out the IRS Form SS-4, and leave section 7b blank.