Every business needs a unique identifier, much like every individual needs a Social Security number.
For businesses, this identifier is known as an Employer Identification Number (EIN), provided by the Internal Revenue Service (IRS).
Let’s take a look at what an EIN is, why your business needs one, how to get one, and what to do with it once you have it.
What is an EIN
An EIN is a nine-digit number assigned by the IRS to businesses operating within the United States for the purposes of identification. Often referred to as a Federal Tax Identification Number, the EIN is used by the IRS to recognize corporations, partnerships, LLCs, non-profit organizations, government agencies, trusts, estates of decedents, and other business entities.
Why Do You Need an EIN?
The primary reason a business needs an EIN is to comply with IRS tax filing and reporting requirements. Here are some specific circumstances that necessitate an EIN:
- Businesses with Employees: If your business has employees, you need an EIN to pay payroll taxes and provide employee tax documents.
- Business Entities: Corporations, partnerships, and Limited Liability Companies (LLCs) must have EINs, whether or not they have employees.
- Banking: Most banks require a business to provide an EIN to open a business bank account.
- Licenses and Permits: Some local and state government agencies require an EIN to issue licenses and permits.
- Tax Reporting: Certain business entities must file tax returns with the IRS using an EIN.
How to Obtain an EIN?
Getting an EIN is free and relatively simple:
- Online Application: The easiest and fastest way is to apply online on the IRS website. This service is available for businesses located in the U.S. or its territories. You’ll receive your EIN immediately upon completing the application.
- Mail or Fax: You can also apply by mailing or faxing Form SS-4 to the IRS. If you choose this route, expect to wait about 4 weeks (mail) or up to 4 business days (fax) to receive your EIN.
Using Your EIN
Once you have your EIN, it will be used for a variety of business purposes:
- Bank Accounts: You’ll need your EIN to open a business bank account and apply for business loans.
- Employment: It’s necessary for reporting taxes and other documents to the IRS, as well as reporting information about employees to state agencies.
- Licenses and Permits: An EIN may be required when applying for local and state licenses and permits.
- Business Contracts: Some business contracts may require an EIN.
- Tax Returns: You’ll need an EIN to file your business’s tax returns.
Again, an EIN is a vital part of your business operations, enabling you to meet your business’s legal and tax obligations. If you’re planning to start a business, getting your EIN should be one of the first steps you take. Even if you’re not required to have one, it can be beneficial in keeping your personal and business finances separate, making it a good idea for even small sole proprietorships.
Remember that each EIN is unique to the business entity it’s assigned to, and it stays with the business indefinitely unless the business structure or ownership changes.
It’s important to keep your EIN confidential and use it responsibly, just like you would with your personal Social Security number.