Learn about EINs, or Tax ID numbers, and why you may need one.
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If you plan to start any type of business, then you’ll likely need an Employer Identification Number (EIN). Keep reading to discover what an EIN is, when the IRS requires one, what businesses may NOT need one, EIN uses, and the steps for getting one.
Sometimes also referred to as a Federal Employer Identification Number (FEIN), an EIN is a unique, nine-digit number used to identify a business entity.
This identifier is very similar to a Social Security Number (SSN), but for businesses rather than individuals. Where individuals use their Social Security Number, businesses use an EIN as their Taxpayer Identification Number.
We’ll dive deeper into the uses for an EIN shortly, but essentially, you use your EIN for all purposes related to IRS identification, tax returns/reporting, and paperwork filing.
Generally speaking, if a business owner is required to report employment taxes or provide employees or annuitants with tax statements, the will need an EIN to do so.
If ANY of the following statements apply to you, then you need an EIN: You have employees.
You run your business as a corporation or partnership.
You file any of the following tax returns:
Alcohol, tobacco, and firearms.
You withhold taxes on income (besides wages) paid to anyone who is a non-resident alien as defined by the IRS.
You have a Keogh plan.
You are involved with a trust (with certain exceptions), estate, real estate investment conduit, non-profit organization, farmers’ cooperative, or plan administrator.
Most business entities need an EIN to complete business tax returns and conduct any other necessary reporting to government agencies. If your business is a corporation, partnership, or limited liability company (LLC), you’ll likely need an EIN.
Sole proprietors, however, may not need one. As long as they don’t have any employees, sole proprietors can use their own Social Security Number as a Taxpayer Identification Number, including for business tax purposes.
If you’re a sole proprietor and you have or decide to hire employees, then you’ll need to get an EIN. At this stage, you might want to consider forming an LLC. Most new single-member LLCs classified as disregarded entities will need to obtain an EIN.
The uses for an EIN include:
Most U.S. financial institutions require you to have an EIN in order to open a business bank account. That means that even if you’re a sole proprietor or single-member LLC without employees, you’ll still want to get an EIN if you intend to open a bank account for your business.
If the ownership or structure of your business ever changes, you may be required to get a new EIN. Refer to the “Do You Need a New EIN?” page on the IRS’ website to read through a checklist for various types of businesses and occurrences in which a new EIN is and isn’t required.
Getting an EIN is easy (and usually free). You’ll just need to go to the official IRS website and follow the steps there by entering your business entity’s information.
That said, there are a few things to consider.
First, you’ll need to decide who the principal officer for your business is going to be. According to the IRS, unless your business is a government entity, the principal officer must be an individual (person). This person will then be the responsible party who controls, manages, or directs the “applicant entity” (your business).
Once appointed, your principal officer will use their Taxpayer Identification Number (most likely their Social Security Number) to apply for an EIN.
Next, as of May 21, 2012, the IRS began limiting EIN issuance to one per responsible party, per day.
Finally, before getting an EIN, you should form your business. That’s because the IRS asks for your date of business formation when you apply for an EIN.
Not interested in getting an EIN from the IRS? Use our EIN Service, and we’ll secure one for you.
Want to learn more about the EIN application process for LLCs? Check out our step-by-step guide: “How to Get an EIN.”
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.