Separate your business and personal funds, preserve your limited liability, and maintain your privacy with an Employer Identification Number (EIN).
What is an EIN and how is it obtained? What information do you need for an EIN?
In this article, we dig deep into the details of an EIN and how to obtain one for your unique needs.
What is an EIN?
An Employer Identification Number (EIN), also known as a Federal Employer Identification Number (FEIN), or Federal Tax Identification Number (FTIN), is like a Social Security number (SSN) for your business. However, the format for EINs is easier to identify because they are formatted differently. Rather than having three numbers, two numbers, four numbers, EINs look like xx-xxxxxxx
This unique nine-digit EIN number allows the Internal Revenue Service (IRS) to identify businesses for tax reporting.
What is the Purpose of an EIN?
Whether you’re starting a business, opening a business bank account, or hiring employees, there are several reasons you may need an EIN. Businesses also need EINs when filing employment tax returns or selling tobacco, alcohol, or firearms.
Banking and finance – Banks and credit unions often require a valid EIN in order to open a business bank account, non-grantor trusts, or an estate. An EIN is also helpful for businesses wanting to obtain financing or working capital.
Employees – If your business hires employees, you’ll need an EIN to track your payroll tax remittances. Regardless of whether you have employees, business owners establishing a business entity other than a sole proprietorship will also need an EIN. Your EIN is used to track your business income taxes.
Retirement plans – If you’re a self-employed person who establishes a solo 401(k) plan, you’ll have to obtain an EIN.
Employer Identification Numbers are issued for the purpose of tax administration and are not intended for participation in any other activities (e.g., tax lien auction or sales, lotteries, etc.)
How to Apply for an Employer Identification Number (EIN)
If applying for an EIN for business purposes, it’s best to apply when you first launch your business. However there are times when you need to apply for tax season or for a business loan application.
Applying for an EIN through the IRS is free and only takes a few simple steps:
1.Determine your eligibility
There are only two requirements for applying for an EIN – your primary business activities must be in the U.S and the person who submits the application must have a valid social security number or taxpayer identification number.
Just because you provide services or conduct business outside of the U.S. doesn’t mean that you don’t meet the eligibility requirements. If your primary business activities are in the U.S., you are eligible to apply for an EIN.
Additionally, the person who submits the application doesn't have to be the business owner. The applicant can be a registered agent, partner, or officer of the company.
2. Complete the application
EIN applications require a lot of tedious information (which you’ll find most of below). When applying for an EIN, it’s best to review Form SS-4, so you’ll know the information and details needed to complete the application.
3. Submit Application
You can apply online, by fax, or mail for an EIN. For most U.S citizens, online is the fastest method. The IRS online version offers a step-by-step form that walks you through the process while providing helpful resources along the way. The application is available Monday through Friday 7 a.m. to 10 p.m. EST.
By using the IRS online application, you receive an EIN immediately after electronically submitting your application. Fax applications take approximately four business days to process. And mailed applications take up to four weeks or more.
There’s actually a lot of information that’s needed when applying for an EIN. All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner or trustor.
When you apply for an EIN, be sure to have this information on hand:
- The legal name of the business or the entity.
- The type of entity (LLC, corporation, partnership, trust, estate, etc.)
- The number of LLC members if for an LLC.
- The state in which the company or entity is located.
- The person authorized to act for the business or entity (trustee, registered agent, etc.)
- The mailing address for the authorized person and legal business or entity.
- The authorized person’s social security number, tax identification number, or existing EIN.
- The reason for the EIN (new business, hiring employees, trusts, banking, retirement, etc.)
- The business activity (selling products or services.)
- The losing month of the accounting year.
- The estimated amount of the highest number of employees in a year.
- The applicant’s name, title, phone number, and signature.
- If authorized, the third-party contact information.
Do you need an EIN? Is it Required?
EINs are necessary for partnerships and corporations, however, most sole proprietorships don’t need them. And unless a single-member LLC is required to file employment or excise tax return, they may not need an EIN either. An LLC does not need an EIN if the income and expenses of the business are reported on the owner’s tax returns.
When creating trusts, you will also need to obtain an EIN, however, revocable living trusts do not require them.
While most sole proprietors may not need an EIN, it can be beneficial to obtain one. Sole proprietors often act as independent contractors and have to give out their personal information – like their social security number. With an EIN, they could give clients that number rather than personal information.
Having an EIN not only protects your business and your personal information, but it makes your business appear more professional. An EIN can often mean the difference between gaining new business and not - based solely on credibility.
If you’re looking for more information on EINs and the process of obtaining one, contact us today.