What is an EIN – and Why Do I Need One?

In the United States, individuals or entities that want to start a business must apply for an Employer Identification Number (EIN), also known as a Taxpayer Identification Number (TIN).

An Employer Identification Number is a unique, nine-digit number that the Internal Revenue Service (IRS) assigns to businesses. It is used to identify businesses for tax purposes and to open bank accounts, among other things.

You will need an EIN if you are starting a business with one or more employees or if you are required to file certain tax returns. You may also need an EIN if you are opening a bank account in the name of your business.

If you are considering opening your own business, read on to learn more about the Employer Identification Number, how to get one, and what to do with it once you have it.

Imagine that you are opening a new business. You have a great idea, a solid business plan, and the drive to succeed. The first step in making your business a reality is to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS).

An EIN is a unique, nine-digit number that identifies your business for tax purposes. It is used to open bank accounts, apply for business licenses, and file tax returns.

For many, obtaining an EIN doesn’t cross their mind until they are ready to open a bank account in the name of their business. However, if you are starting a business with one or more employees, you will need an EIN to file your taxes.

Those who try to operate without an Employer Identification Number may find themselves subject to penalties and interest charges – something no small business owner wants to deal with.

Who Needs an EIN?

As an EIN is essential for businesses with employees, it’s no surprise that this is the most common type of business that needs one.

In addition to businesses with employees, other entities that may need an EIN include:

Sole proprietorships with no employees: You may need an EIN if you are required to file certain tax returns, such as excise or alcohol, tobacco, and firearms returns.

Corporations: All corporations – whether S-Corps, C-Corps, or non-profits – must have an EIN. These businesses will use their EIN when filing tax returns and employee wage reports.

Partnerships: Partnerships, both general and limited, must have an EIN for tax purposes. This number will be used when filing the partnership’s annual return. If the partnership has any employees, the EIN will also be used when filing payroll tax returns.

Trusts and estates: In some cases, trusts and estates may need their own EIN. This is typically the case when the trust or estate has employees or files certain tax returns.

Non-profit organizations: Most non-profit organizations are required to have an EIN. This number is used when applying for grants and filing tax returns. Without an EIN on file, the IRS will not recognize the organization as a non-profit.

What If I Don’t Know if I Need an EIN?

If you are unsure if you need an EIN, the best course of action is to contact the IRS. The agency can help you determine if you need an EIN and, if so, how to apply for one. In many cases, you can reach out to your tax accountant or your state’s Secretary of State’s office to learn your business needs.

How to Get an EIN

While the need for an EIN is essential, the process for obtaining one is relatively easy – and in nearly all cases, it can be done online. Here’s a simple guide to how you can get your EIN:

Step 1: Determine if you need an EIN.

As we’ve discussed, businesses with employees will need an EIN. Other businesses that may need one include those that file certain tax returns, have a bank account in the business name, or apply for business licenses. Make sure to determine if your business needs an EIN before moving on to the next step.

Step 2: Gather the required information.

To apply for an EIN, you will need to have the following information on hand:

• The legal name and business structure of your entity (company)
• Your entity’s physical mailing address
• The name and Social Security number of the principal officer of your business (You can also use an Individual Taxpayer ID Number (ITIN))
• In most cases, you will also need to provide a copy of your business license or permit. (If you are applying for an EIN on behalf of a trust or estate, you will need to provide the Taxpayer Identification Number (TIN) of the trust or estate.)

Once you have gathered all the required information, double-check that the information is correct and complete. Inaccurate or incomplete information can cause delays in processing your application.

Step 3: Complete the online application.

Most applicants will apply for their EIN online through the IRS or your Secretary of State’s website.

To begin your application, you will need to provide your business name and contact information, as well as the name and Social Security number of the principal officer of your business.

You will also need to answer a few questions about your business, such as the type of entity you have formed and whether you have any employees.

Different states may require different information when applying for an EIN. If you are unsure about what you need to provide, check with your state’s Secretary of State office or tax agency.

Step 4: Submit your application.

After you have provided all of the required information, review your application for accuracy. Once you are sure that everything is correct, submit your application.

Within a few days, you will receive your EIN in the mail and by email. You will want to file this number away in a safe place, as you will need to use it anytime you file taxes or apply for business licenses and permits.

How to Use Your EIN

Once you have obtained your EIN, you will need to put it to use. Here are a few ways that you can use your EIN:

1. File your taxes:

Business entities must file taxes and depending on the type of business, may be required to file quarterly or annual tax returns. When filing your taxes, you will need to include your EIN on the return.

2. Apply for licenses and permits:

Many businesses need to obtain licenses or permits in order to operate legally. When applying for these licenses, you will likely need to provide your EIN as part of the application process. This will ensure that the government has a record of your business and can properly tax your entity.

3. Open a business bank account:

Want to open a business bank account? You’ll need an EIN for that.

When you open a business bank account, the bank will ask for your EIN in order to properly identify your business. This is important because it will allow you to keep your personal and business finances separate.

Making sure that your finances are separate is crucial for maintaining the legal structure of your business.

Setting up business credit:

If you want to establish business credit, you will need an EIN.

Many businesses use business credit to help with cash flow or to finance large purchases. When applying for business credit, lenders will ask for your EIN so that they can properly identify your business.

Hiring employees:

If you plan on hiring employees, you will need an EIN. You will use your EIN to fill out the necessary paperwork for your employees, such as their W-4 forms.

In addition, you will need to withhold taxes from your employees’ paychecks and contribute to their Medicare and Social Security taxes. All of this will be done using your EIN.

Operating as a contractor:

If you plan on operating as a contractor, you will need an EIN. When working with clients, they will often ask for your EIN to properly pay you for your services. In addition, if you plan on hiring any subcontractors, you will need their EIN in order to file your taxes correctly.

These actions – plus more specific activities specific to your business type – will require your EIN. Keep it readily available to streamline the process whenever you need it.

FAQs

1. Do I need an EIN?
   If you are starting a business, you will likely need an EIN. However, there are some businesses that are not required to have an EIN. These businesses include sole proprietorships with no employees and partnerships without employees. If you are unsure whether your business needs an EIN, check with your state’s tax agency.
2. How do I apply for an EIN?
   The process for applying for an EIN varies depending on your business type. For most businesses, you can apply online, by fax, or by mail. The application process takes about 15 minutes to complete.
3. How long does it take to get an EIN?
   It usually takes about 1-2 weeks to receive your EIN in the mail. You will also receive your EIN by email, usually as soon as it’s filed.
4. Do I need to renew my EIN?
   No, your EIN does not need to be renewed. Once you have obtained your EIN, it will be valid for the life of your business.
5. What if I lose my EIN?
   If you lose your EIN, you can contact the IRS and they will provide you with a new one. You can also find your EIN on your most recent tax return.
6. Can I get an EIN for my personal use?
   No, you cannot get an EIN for your personal use. EINs are only for businesses. If you need to obtain a Social Security number for your personal use, you can apply for one at your local Social Security office.
7. I’m not a US citizen, can I still get an EIN?
   Yes, you can still get an EIN even if you are not a US citizen. However, you will need to have a valid US taxpayer identification number to apply for an EIN. You can get a taxpayer identification number by applying for a Social Security number or an Individual Taxpayer Identification Number.
8. How much does it cost to get an EIN?
   There is no fee to apply for an EIN. However, there may be fees associated with filing your taxes. These fees will vary depending on the type of business you have.
9. What if I need to update my EIN?
   If you need to update your EIN, you will need to contact the IRS. You can update your EIN by mail, fax, or online. If you move, update your address with the IRS so that they can send you any correspondence related to your EIN.
10. I’m no longer using my EIN. What should I do?
    If you are no longer using your EIN, you can contact the IRS, and they will inactivate it. You should also update your business registration with your state so that they are aware that you are no longer using your EIN.

The Bottom Line

An EIN is essential for most businesses. It is used for a variety of purposes, and can give you peace of mind knowing that your business is properly registered with the government.

Applying for an EIN is a simple process, and it’s free to do so. Be sure to keep your EIN in a safe place so that you can easily access it when you need it. With your EIN in hand, you can conduct business confidently knowing that you are in compliance with the law!