Employer Identification Number (EIN) is a unique 9-digit number assigned by Internal Revenue Service (IRS) to your business. EIN is used to identify your business for tax purposes. EIN is also known as;
- Federal Tax Identification Number (FTIN)
- Federal Employer Identification Number (FEIN)
- 95 Number
- Tax I.D Number
Like your Social Security Number (SSN), which is used to identify USA residents, EIN helps identify business entities registered in the USA. However, EIN is not sensitive information like SSN, and you can freely share it on the internet or distribute it through publications.
Who Needs an EIN?
As per Internal Revenue Service’s (IRS) established rules, your business must acquire an EIN in the following situations;
- Your business has or plans to hire employees.
- Your business is registered as a corporation or partnership.
- Your business follows a multi-membered LLC structure.
- Your business has a Keogh plan or solo 401(k) retirement plan.
- Your business withholds taxes on income, for nonwage, paid to a nonresident alien.
- Your business files excise, employment, or Alcohol, Tobacco, and Firearms taxes.
- Your Business is based on any of the following organizations;
- Trusts, except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns
- Real estate mortgage investment conduits
- Farmers’ cooperatives
- Non-profit organizations
- Plan administrators
When Does Sole Proprietorship Need an EIN?
Sole Proprietorship generally does not need an EIN. However, if your company has employees or pays pension plan, excise, or similar taxes mentioned above, your Sole Proprietorship is entitled to have an EIN.
Moreover, a sole proprietorship also need an EIN if;
- You are subject to a bankruptcy proceeding.
- You wish to open a bank account.
- You incorporate.
- You take in partners and operate as a partnership.
- You purchase or inherit an existing business that you operate as a sole proprietorship.
When Does Limited Liability Company (LLC) Need an EIN?
If you are the sole owner of an LLC, you do not need to acquire an EIN. However, a multi-membered LLC, single-membered LLC with employees, or an LLC that chooses to pay its taxes as a corporation; must get an EIN.
How to Apply for an EIN?
IRS offers an EIN to all business entities for free. You can apply for your EIN via fax, mail, or online through the IRS website. Before you apply for an EIN, you must;
Check for Your EIN Eligibility
In order to get an EIN, you should
- Your principal business must be located in the U.S. or U.S. territories.
- The person applying (responsible party) must have a valid taxpayer identification number, such as SSN, ITIN, or EIN.
Collect Necessary Information
- Name, address, SSN of the responsible party
- Type of business entity
- The primary reason for applying (e.g., banking purposes, launching a business, hiring employees, etc.)
- The starting date or the day you acquired your business.
- Your primary industry’s description and explanation of its primary product or service.
- Maximum number and type of employees your business expects to hire during the next 12 months.
- The date when you were or will be paid in your business for the 1st time
- Closing month of your company’s fiscal year.
- If you pay your employees $4,000 or less in wages per calendar year, how would you like to file tax? Whether an annual employer tax return or a quarterly employer tax return.
Apply for an EIN
You can apply for an EIN through;
Apply online through the official website of the Internal Revenue Service (IRS).
If you are submitting your EIN application by fax, send it to fax number (855) 641-6935.
If applying for EIN by mail, submit your application to Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999.
You can get your EIN filed by professional LLC formation services at a fraction of the cost and save yourself from any hassle or filling the wrong paperwork.
Benefits of Having an EIN
Even though IRS does not require your business to have an EIN, getting one will benefit you in the following ways;
- You can file business taxes and avoid tax penalties.
- You can open a business bank account.
- Your business will have credibility.
- You will be saved from identity theft.
- EIN speeds up business loan applications.
- EIN establishes business credit.
- EIN builds trust with vendors.
- Your company can easily hire employees.
- Your business gets more options as an alien or non-USA resident