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As you embark on your journey as an entrepreneur, you may encounter a puzzling code crucial to your business’s identity: the EIN.
If you’re curious about what an EIN is, sometimes known as an EIN number, you’ve come to the right place. This crucial nine-digit code holds significant importance, and this blog post is here to reveal its secrets and provide all the information you need to understand it.
Discovering the secrets of the EIN will allow you to comply with tax regulations, manage your finances, and access a plethora of business prospects.
If you’re an entrepreneur, it’s crucial to understand what is an EIN for business. By grasping its significance as an essential identification code, you’ll be better prepared for the exciting journey of elevating your business to unprecedented success. Let’s dive into this intriguing realm together and explore everything there is to know about it.
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What Is an Employer Identification Number (EIN)?
It’s a unique identifier the Internal Revenue Service (IRS) assigns to business entities, which helps the IRS easily identify them.
What is an EIN for business? Employer Identification Numbers are primarily utilized for tax reporting purposes by employers, and the format consists of nine digits arranged as XX-XXXXXXX.
Do I Need an Employer Identification Number?
The IRS mandates specific companies to acquire an EIN as part of reporting obligations. To meet this requirement, a company must apply for and obtain an EIN if it:
- Withhold taxes from money given to foreigners who are not residents
- Submits tax returns for employment, excise, alcohol, tobacco, and guns
- Has any staff members
- It’s associated with various organizations, including but not restricted to trusts, estates, or non-profits
- Operates as a partnership or corporation
- Has a Keogh plan
Companies that change their ownership structure usually need to request a new Employer Identification Number. For example, if a sole proprietor decides to register their business, they must apply for a new EIN.
To receive assistance with starting a business, look at our comprehensive guide about the finest business registration services. These services, including ZenBusiness, Northwest Registered Agent, and IncFile, can help you in appointing registered agents and determining what sort of business licenses your organization requires.
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What Is an EIN for a Business?
If you’re wondering “what is an EIN number” for business, it’s a requirement that must be fulfilled before commencing operations. Just as Social Security Numbers (SSNs) are used to identify individual residents, EINs serve the same purpose but for businesses in the United States.
An EIN, also known as a Federal Tax Identification Number (TIN), provides information about the state where a business is registered. The IRS also uses it to identify taxpayers who need to file different business tax returns.
If your company is structured as a corporation or partnership and collects taxes on sources of income beyond salaries, you must obtain and possess an Employer Identification Number.
Additionally, an Employer Identification Number is necessary if you have employees or need to submit specific tax reports. The types of business organizations that are eligible to request and obtain Employer Identification Numbers are as follows:
- Government agencies
- Sole proprietorships
- S corporations
- Non-profit organizations (NPOs)
- Limited liability companies (LLCs)
It’s worth noting that the Internal Revenue Service (IRS) treats all companies equally regardless of their size. Even single-employee businesses can obtain an employer identification number (EIN), just like big multinational corporations.
It’s worth mentioning that unlike social security numbers (SSNs), EINs are not confidential and sensitive data. Companies can easily share their EINs through online and print mediums.
How to Get an Employer Identification Number?
If you’re a business owner wondering what is an EIN for business and how to obtain one, you’ll need to complete Form SS-4. This form can be found on the IRS website and is essential for acquiring your Employer Identification Number (EIN). The application must include precise information such as the taxpayer identification number and the name of the principal officer, partner, owner, trustor, or any other relevant company title.
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How to Get a Free EIN?
If you’re wondering how to get an EIN for free, the IRS website has a user-friendly EIN Assistant that allows you to apply online. Apply directly through the IRS site, mail, or fax to get a free EIN. This method isn’t only the quickest but also the simplest way to obtain your EIN.
However, it’s necessary to establish a business and obtain approval for its name from the state before applying for an EIN. The IRS will also require information such as the business formation date and legal name.
EIN Application Overview
There are two options. You can either apply for it on the official IRS website or enlist the help of an external service to guide you through the process. Upon finishing the application, an EIN will be provided instantly. If a confirmation letter is required, Adobe Reader installation is essential before starting the process.
The application process involves the completion of 12 stages:
Step 1: Verify That You’re Eligible
Having experience as an entrepreneur may not meet the requirements for requesting one online. It’s recommended to conduct thorough research to identify any potential restrictions that may need to be addressed.
In some cases, they may have already obtained an EIN online but may encounter difficulties when attempting to apply for one again. In such scenarios, applying for fax or mail could become necessary. To apply for an EIN, individuals must meet specific eligibility requirements:
- Have ownership or control over the business and just obtained one EIN that day
- Have a main place of business in the United States or one of its regions
- Own a valid tax identification number
- Your business must be incorporated in the United States
Step 2: Understand the Application Process
To avoid having to restart the application, it’s important to complete it in one sitting. If you take over 15 minutes to continue, your session will end, and you won’t be able to save your progress.
It’s essential to apply for one as soon as you register your company. However, if you miss this opportunity, the next best time would be at least two weeks before your taxes or business loan application, as it takes around two weeks for the IRS to process your EIN, despite receiving the ID number immediately.
Step 3: Determine Who Will Apply
The IRS only allows one application per day to the individual responsible for the entity. If you delegate the application process to a third party, it’s important to provide them with authorization beforehand.
A third-party authorization must be given to:
- Read and sign the authorization form allowing the nominee to request and get an EIN on your behalf
- A copy of the statement should be kept in the nominee’s records, so make sure of it
- Form SS-4 should be completed and signed, including the third-party designee portion
Before the application process begins, you must complete all necessary tasks. Once approved, the IRS may share your EIN with the organization. As a taxpayer, you will receive a notification regarding the status of your application and submitted form.
Step 4: Gather Documents for the Online Application
Documentation is required to verify the registration of your business under a qualifying business structure. Providing the documents serves as proof and ensures compliance with regulations.
- Employee information: Corporate resolution listing new employees’ names, positions, and maximum salaries
- Personal identification: Birth certificate, ITIN, and Social Security card
- Company identification: Articles of incorporation, a business registration certificate, and a DBA name
Individuals confident about the accuracy of the details provided in their application documents may not require hard copies. However, if they intend to send their application by post or fax, they must keep the SS-4 form within reach.
Step 5: Accept Permissions
Before starting the online application, it’s mandatory to agree to an IRS cautionary message that declares the government’s authority to track your actions throughout the procedure. Once you acknowledge the message by clicking “OK,” you can proceed with the application.
Step 6: Identify Yourself
After choosing the appropriate business structure, you must furnish additional details about yourself and any partners involved. You must mention the state where your company is situated and the number of members in your organization. Moreover, you’ll be asked if you are married to your business partner.
The information submitted here must pertain to the responsible party, i.e., either the owner or a company member. If you’re applying on behalf of the responsible party, you must reveal that information.
Step 7: Establish Your Reason for Applying
When filling out your application, you must provide a reason for the request. The IRS acknowledges multiple justifications for obtaining an EIN, especially in case of:
- New organizational structure
- Started a new company
- Employed one or more people
- A bank account was opened
- Bought a current business
Step 8: Complete Authentication
To move forward with the application, you must provide your SSN or ITIN for the authentication process. If you don’t have either of these, you won’t be able to continue with the application.
Step 9: Disclose Addresses
You’ll be required to provide the physical location of your business. It’s critical to note that this address cannot be a P.O. Box. It must be:
- A physical location
- Located in the US
Step 10: Enter the Final Details
Before submitting your application and selecting your confirmation letter preferences, the last step in the application process will require you to provide information on your company’s:
- Start date
- Location (county, state, and territory)
- Legal name
Step 11: Complete EIN Confirmation
When filling out the application, you can choose how you want to receive the confirmation letter for your EIN.
You may select one of two ways to get your letter:
- By mail: The letter from the IRS may take around two weeks to be delivered to the address you provided.
- Online: To obtain and print the letter, it’s recommended to utilize Adobe Reader.
Step 12: Submit Your Application
After completing the application and providing additional details based on your responses, you can submit it. Once submitted, you will be given your EIN right away. After obtaining your Employer Identification Number, you can confirm it by downloading, saving, and printing the EIN confirmation notice.
When Should a Business Get an EIN?
Irrespective of the type of business structure, obtaining an EIN (Employer Identification Number) is recommended. An EIN is essential when applying for a business credit card or setting up a business bank account. A majority of banks necessitate an EIN to initiate a business banking account.
Why Get an EIN if You Don’t Have To?
Self-employed professionals such as independent contractors, freelancers, small business owners who work from home, and those who earn extra income from the gig economy are typically not required to obtain an EIN.
It may not be mandatory according to the IRS, but obtaining one can prove highly advantageous if you:
- Use a business card to make purchases for your company
- You want to open a bank account just for revenue and costs related to your business
- Seek a business loan to launch or grow your enterprise
- Aren’t interested in using your social security number
It’s important to remember that an EIN is solely for business use and cannot substitute for your SSN when it comes to filing personal taxes.
Benefits of an Employer Identification Number
The identification numbers assigned to businesses, known as EINs, are exclusive to each particular business and don’t have an expiration date. Even if a business shuts down, the assigned EIN will not be reissued to any other company.
The primary benefit of obtaining an EIN is to function efficiently. It’s impossible to manage your enterprise without it. Additionally, an EIN is mandatory for performing the following tasks:
- Registering for state taxes and submitting company taxes
- Acquiring credit, opening bank accounts, and investing extra money
- Hiring and paying employees
- Maintaining corporate shields
- Establish a trust, a nonprofit, or an estate
- Obtaining business loans
- Build credibility
EIN enables you to keep your personal finances separate from your business. Obtaining an EIN is essential as it helps protect your personal information from being compromised by identity thieves.
Freelancers, such as subcontractors, usually need to possess an EIN, which the main contractor will utilize to report to the IRS all the earnings paid to the subcontractor.
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Closing Your Employer Identification Number
Once you’re assigned an EIN, it’ll always be linked to you and your business. The EIN will be permanently associated with your entity, and the Internal Revenue Service (IRS) cannot revoke it.
An EIN is an essential component of mandatory financial reporting. The EIN remains linked to the entity even if no returns are filed. If an EIN is granted, it can be used later if necessary.
If you receive an identification number but realize it was not required, the IRS may shut down your associated business account. This frequently happens to start-up companies that never actually launch.
To close the account, a physical letter must be sent providing the legal name, business address, EIN, and reason. The EIN remains active, but the IRS business account will be suspended.
Employer Identification Number (EIN) vs Taxpayer Identification Number (TIN)
The term Tax Identification Number (TIN) is a general reference to any identification number used for tax purposes, while an EIN is a particular kind of TIN. TIN encompasses various types of numbers that can be utilized on tax forms, including but not limited to:
- PTIN (Preparer Taxpayer Identification Number)
- ATIN (Adoption Taxpayer Identification Number)
- ITIN (Individual Taxpayer Identification Number)
The TIN used by the IRS may or may not be the same as the EIN depending on the individual taxpayer. Sole proprietors typically use their social security number as their TIN, while corporations, partnerships, trusts, and estates often use an EIN as their TIN.
Employer Identification Number (EIN) vs Federal Employer Identification Number (FEIN)
The purpose of a FEIN, which stands for a federal employer identification number, is the same as an EIN, except it’s issued by the federal government instead of the state.
A FEIN also enables individuals to enroll in the Electronic Federal Tax Payment System (EFTPS), which facilitates the easy payment of taxes over the phone or online.
What Happens If You Lose or Misplace Your EIN?
In case you lose your EIN, check the notice sent to you by the IRS at the time of its issuance. Another option is to contact your bank to retrieve it. Alternatively, you can refer to your previous tax returns to find them.
If none of these methods work, you can reach out to the IRS’ Business & Specialty Tax Line at 1-800-829-4933. Make sure you have all the necessary identification information handy before speaking to an operator.
What Situations Require an EIN?
Sole proprietorships and contractors aren’t obligated to obtain an EIN. Nevertheless, an EIN becomes mandatory if:
- A company or partnership was established
- Used estate funds to establish a trust
- Are a state or local agency
- Pay federal excise taxes
- One is required to satisfy the IRS’s withholding obligations
- Opening a business bank account
- Represent a deceased’s estate, which may include a company
- Are a representative who manages an estate that continues to run a business after the owner passes away
- Provide a retirement plan, profit-sharing opportunities, or pension
- Reorganized your company’s structure
- Proposal to withhold non-wage earnings from a foreign national
- Possess a single-member LLC that is taxed as either a C or an S corporation
- Control a deceased person’s estate through the probate process
- Have a company that, regardless of how you choose to tax it, transforms into a multiple-member LLC
- Established a pension plan
- Intend to hire staff
- Founded a business
International EIN Applicants
If you are not a U.S. citizen and don’t possess an SSN, obtaining an EIN is still possible. To do so, you must complete IRS Form SS-4, leaving section 7b blank.
You can submit your application by calling the IRS at 267-941-1099 during their operating hours from Monday to Friday between 7:00 a.m. and 10:00 p.m. Eastern Standard Time. Alternatively, you can also apply for an EIN by fax at 304-707-9471.
To avoid incurring charges, opting for a web-based calling service is advisable, as the provided phone number is not toll-free. The estimated time required to obtain an EIN may take up to an hour, and it is better to call on any other day except Monday, as it is the busiest day for the IRS to receive calls.
What Is an EIN? – Frequently Asked Questions
How Long Will It Take to Get an EIN?
If you apply for an EIN online, you’ll receive it instantly. However, if you prefer to fax the application to the IRS instead, it may take up to two weeks for you to receive your EIN.
Alternatively, you can opt for the traditional method of sending a paper mail application, but it’ll take around four to five weeks to process.
Can I Have Multiple EINs?
It’s possible to have multiple EINs for each business entity, but only one EIN can be assigned to each business. In the event of significant changes to the business structure, a new EIN may need to be obtained.
Is It Better to Use a Social Security Number or an EIN?
It’s impossible to avoid obtaining an EIN if the IRS decides it’s necessary. However, it’s advisable to obtain an EIN for your business, even if not mandatory, to mitigate personal risk.
- Obtaining an EIN is crucial for maintaining a clear distinction between your personal and business finances. This ensures that your Social Security number is reserved for personal use and prevents identity theft from affecting your personal assets. The Internal Revenue Service advises against using your Social Security number unless your business structure is straightforward and lacks employees.
- Identity theft
- Liability issues
- Tax penalties
It’s advisable to utilize an EIN instead of your SSN when establishing a Keogh plan. It’s recommended to immediately establish a fraud alert if you intend to use your SSN for business identification or tax-related reasons.
Bottom Line on “What Is an EIN Number”?
If you’re wondering “what is an EIN number,” it’s a unique nine-digit identifier that simplifies tax compliance, financial administration, and business expansion. In short, understanding what an EIN is will help ensure your business is set up for success.
By comprehending the importance of this specific number, business owners can confidently navigate the intricate maze of the business world.
This reliable ally supports the growth and success of new startups and well-established enterprises in the competitive field of commerce. So whether you’re just starting or have been in business for a while, understanding what an EIN is can be beneficial.