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What Is a EIN? (The Basics)

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What is a Federal EIN or Tax ID?

When an entrepreneur or business owner incorporates his or her, it becomes a separate entity. To identify every business, the IRS assigns a unique Employer Identification Number (EIN) to the business entity. One of the first steps that a newly formed company is required to do is apply for a federal EIN through the IRS. It's a free service that can be completed on the IRS.gov website and is a requirement for most companies.


EIN Explained

An EIN or Federal Tax Identification Number. You can think of this EIN as the business social security number. An EIN serves as a way to distinguish the business as a separate entity and is used to file taxes, open a bank account, and more. Companies will require an EIN if:

  • The business has employees
  • The business is operating as a corporation or partnership
  • File tax returns for Excise, employment, or alcohol, tobacco, and firearms
  • A Keogh plan is in place
  • The business withholds taxes on income that gets paid to a non-resident alien

Businesses that are involved in specific industries will also be required to obtain a federal EIN.


Does My Business Need an EIN?

Sole Proprietorship

If your business structure is a sole proprietorship with no employees and doesn't file any corporate business tax returns, you are not required to get an Employer Identification Number (EIN). However, it's usually advisable for sole proprietorships to get an EIN to open a business bank account, build business credit, and obtain business insurance. 


Single-Member LLC

If your business entity is a single-member LLC with no employees or excise tax liability, you are not required to get an Employer ID Number. However, it's usually advisable to get an EIN for your LLC if you decide to hire employees later, obtain funding, and maintain your corporate liability protection. 


Multi-Member LLC or Partnerships

If your business structure is a partnership, you will need to get an EIN because the LLC must file a partnership return and provide K-1s to members of the LLC. Each LLC member will pay taxes to the IRS when they file personal tax returns.


Corporations

If you have an S corporation tax structure, you will need to file corporate income taxes on your tax return through Form 1120S (includes expenses and losses). And Form K-1 for individual shareholders (corporation's income, deductions, and credits); hence an S corp requires an EIN.


If you have a C corporation business entity, you will pay a flat tax at the corporate level and is taxed once again on the shareholders' end through Form 1099-DIV; hence a corporation requires getting an EIN. 

A C-Corporation will file their federal tax return by using Form 1120.


Nonprofit Organizations

If your business structure is a nonprofit, you will need an Employer ID number to open a bank account and hire employees. A not-for-profit will require an EIN to apply for business licenses and grants from local and federal government agencies.



Why Should A Business Get an EIN?

No matter what kind of business you have, it is usually a good idea to get an EIN. Here are some advantages of having an EIN:

Every business bank requires an EIN to open a business checking account.

  • A business bank account will simplify the process of tracking and managing your professional expenses.
  • You can also build business credit and qualify for more loans.


You will need an EIN before you can hire employees.

  • Employers need an EIN for an LLC to set up payroll, and the IRS will use the business's EIN to track payroll taxes for taxpayers.
  • An EIN is necessary to register and pay your State's employer taxes, such as employer withholding and unemployment taxes. 


An EIN helps you maintain your corporate veil.

  • The corporate veil protects business owners from personal liability for the business's debts.
  • Maintaining the corporate veil establishes credibility and professionalism by allowing your business to have its own identity separate from its owners. 


An EIN will help to prevent identity theft.

  • Your Social Security number (SSN) will be more private.
  • It's less likely for someone to break into your accounts when you keep business finances and personal finances separate.


Apply for an EIN Online or Mail 

The quickest and simplest way for taxpayers to get a free EIN is to apply online on the IRS website using the EIN Assistant.

Here is some helpful information to guide you in requesting your EIN. 

  • The IRS's hours of operation for obtaining your EIN are Monday-Friday from 7 a.m. to 10 p.m
  • The United States and U.S. Territories-based businesses are eligible
  • You must have a valid Taxpayer Identification Number (SSN, ITIN, EIN) 
  • The entity owner or responsible party may only apply once per day
  • Complete your application in one session and progress is not be saved
  • The session will time-out after 15 minutes if not in use
  • You will immediately get an EIN after the form after submission. 
  • Only one online application can be submitted online for the same person. 


Obtaining a new business EIN is a relatively simple process; the initial step is to get an EIN online or file an IRS Form SS-4.


No matter how you submit your form, whether electronically, by fax, or through the mail, the SSN, EIN, or ITIN of the company's principal owner, officer, truster, or general partner will be listed and disclosed on the form. The IRS refers to this person as the "responsible party." The responsible party directs, controls, or manages the company,  as well as the company funds and assets.


The EIN form will ask for information regarding the company, including:

  • The address of the company
  • Type of entity
  • The reason for applying
  • The principal activity of the business
  • The date the business was started or acquired
  • Number of expected employees in the next 12 months


You can also apply for an Employer Identification Number (EIN) by fax or mail by completing Form SS-4. If you are submitting by fax, send your EIN application to fax number (855) 641-6935. If applying by mail, submit the completed paperwork to Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999.


While applying for an EIN may appear like a simple process, incorporating the company can be a more complex undertaking. And according to the IRS, "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. This individual or entity that the IRS will call the "responsible party" controls manages, or directs the applicant entity and the disposition of its funds and assets. Unless the applicant is a government entity, the responsible party must be an individual, not a business entity