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.
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:
Businesses that are involved in specific industries will also be required to obtain a federal EIN.
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.
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.
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.
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.
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.
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.
You will need an EIN before you can hire employees.
An EIN helps you maintain your corporate veil.
An EIN will help to prevent identity theft.
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.
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:
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