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It’s vital you get an Employer Identification Number (EIN) no matter the type of business entity you choose. An EIN is necessary if you hope to hire employees and open a business bank account. It also offers protection by helping you separate your personal and business finances.
But as with any legal documentation a business must submit, you must understand the form you must fill in and complete it fully and accurately. So, here, we’ll guide you through the process.
Why Getting an EIN is Worth It
Corporations, multi-member LLCs, nonprofit organizations, and partnerships must get an EIN. However, some business entities, such as sole proprietorships and single-member LLCs, are not required by law to get an EIN.
Nevertheless, getting an EIN has advantages for every type of business entity as you’re about to see.
As the name indicates, you must have an EIN to be able to hire employees. You must provide your EIN when you register for employer taxes within your state. Also, if your business is an LLC, you must provide your EIN to set up payroll, and the IRS uses the number to track payroll taxes.
You’ll need an EIN in order to open a business bank account with most banks. And it’s a given that you’ll want to open a business bank account to separate your business finances from your personal finances. Also, to gain access to benefits such as business loans or lines of credit, perhaps.
Keeping your business and personal finances separate in this way also helps prevent identity theft. You can provide your EIN to clients and vendors instead of your Social Security number (SSN).
Naturally, handing out your SSN all over the place is a lot riskier. Plus, in this instance, an EIN adds a level of professionalism and credibility to your business.
Finally, an EIN provides a corporate veil for LLCs. In other words, it protects you from personal liability if the business incurs debts.
Other Cases that Require an EIN
You may not have realized, but there are some other cases in which you’ll be required by law to obtain an EIN, even if you don’t intend to hire employees.
If any of the following applies to your business, then you must get an EIN:
- The business files excise taxes required for certain goods such as alcohol, tobacco, and fuel.
- The business withholds taxes on income other than wages for a nonresident.
- The business has an established pension, retirement, or profit-sharing plan.
- The business is a single-member LLC that has chosen to be taxed as an S corporation or C corporation.
- Your state or local government agency regulations require you to obtain an EIN.
- The business has one of the following organizational structures:
- Farmers’ cooperative
- Estate
- Trust (though there are some exemptions)
- Real estate mortgage investment conduit
- Plan administrator.
The Investment Needed to Get an EIN
Obtaining an EIN is free. Which is, of course, great news.
But there are a lot of details you must include in your application. So, you may be concerned about getting it right. Or perhaps you don’t have the time to take care of administrative tasks.
In these cases, you may wish to invest in an online legal service that can take care of such formalities for you. IncFile, for instance, will obtain an EIN for you as part of their gold and platinum package incorporation service.
As part of the service, the company also files articles of organization, creates an operating agreement, and takes a number of further steps necessary to incorporate a business.
3 Steps to Get an EIN
The EIN application comprises just one form, which you can submit online, by fax, or by post. The form, however, requires a lot of information about the business entity, which we’ll outline here, along with some additional insights about the application process.
1. Make Sure You’re Eligible
There are just a couple of criteria you must meet to be eligible for an EIN.
Your principal business, aka the physical location where you carry out business activities, must be located in the US or US territories. Furthermore, the applicant must have a valid taxpayer ID, e.g., an SSN.
It’s worth noting that you’re eligible even if you do business overseas, as long as your primary business activities take place in the US or a US territory.
Furthermore, the applicant needn’t be the owner of the business. In line with the IRS requirements, any responsible party may apply. This includes anybody that manages the business’s finances and an officer or partner of the company.
2. Fill in Form SS-4
Form SS-4 is the application form you must file with the IRS to receive an EIN. At this point, you may wish to get the help of an online legal service to make sure you fill in the form fully and correctly.
Here’s the information you’ll need to include in Form SS-4:
- The business entity’s full legal name – If the name contains special characters other than a hyphen or ampersand, you can spell out the character. For example, Tiles.com becomes Tiles Dot Com. You may replace a forward or backward slash with a hyphen. Or you can leave out the character altogether, e.g., remove an apostrophe.
- The business’s trade name – Even though the EIN is awarded to the business’s formal name, you must include any trade names. For example, you may have formed your business as Sarah Smith Catering, but you operate under the name Sarah’s Sandwiches.
- The business’s mailing address – The company’s street address if it differs from the mailing address.
- The name and taxpayer ID of the responsible party – As explained above, this is the person applying for the EIN, which may or may not be the company’s owner. The taxpayer identification may be an SSN, EIN, or Individual Taxpayer Identification Number (ITIN). The latter is the number the IRS gives to those ineligible for an SSN.
- The type of business entity – Indicate if the business is an LLC, corporation, sole proprietorship, or partnership, for example. If the business is an LLC, you must include the number of members and whether it was formed within the US. If it’s a corporation, include the US state or foreign country in which it was formed.
- The primary reason for applying for an EIN – There are several options to choose from, such as Started new business, Hired employees, Banking purpose, and Changed type of organization.
- Key business dates – These include when the business was formed or acquired, plus the final month of the company’s fiscal year.
- Employee information – Indicate the number and type of employees you expect to have in the next 12 months. If total employee wages amount to less than $5000, you can use the form to opt to file annual tax returns instead of quarterly returns. Plus, you must include the first date employees will be paid or the first date you paid employees if it was done previously.
- The principal industry and activity of the business – This includes a description of the goods or services you provide.
- Whether the business previously applied for an EIN – Include the date of the previous application if applicable.
3. Sign and Send the EIN Application
To complete the application, the applicant must, of course, sign and date the form. The applicant must also include their personal information, i.e., address, phone, and fax numbers.
You can submit an application online, by fax, or by mail. Those intending to move to the US and start a business can also complete the application by phone.
The best way to apply for an EIN is online using the IRS’s EIN Assistant.
The EIN Assistant web page outlines some vital information you need to know before filling in the online form. For example, if you’re inactive for 15 minutes, the session will time out. Be sure to read this information carefully.
The best thing about doing the application online is that you’ll receive an EIN immediately once you complete the application. In contrast, faxed applications take around four days and mailed applications up to four weeks.
EIN FAQs
Here are the answers to some of the most frequently asked questions surrounding EINs:
Can I Change My EIN?
There may come a time when you need a new EIN. For example, if the business owner or structure changes. Let’s say you were previously a sole proprietor and decide to incorporate.
All you need to do is apply for a new EIN by filing Form SS-4 following the instructions above. Be sure to enter the new details and tick the appropriate boxes. For example, when it asks why you’re applying for an EIN, you might select “Changed type of organization.”
Note that you don’t need a new EIN if you change the name or location of the business.
Where Can I Find My EIN?
If you lose track of your EIN, don’t worry, as there are many ways you can locate the number.
First, look at any correspondence you’ve received from the IRS. You’ll usually be able to find your EIN in a letter or email. You can also check a previously filed tax return.
Another option is to contact your bank, as they may be able to provide you with your number if you used it to open a business bank account. Similarly, you may be able to contact a local authority to retrieve your EIN if you used it to acquire a license or permit.
If all else fails, you can get in touch with the IRS to ask for your EIN. You can reach them Monday through Friday, 7 am to 7 pm at 800-829-4933.
Do I Need to Get an EIN Before or After Forming an LLC?
You’ll need to form your LLC before attempting to get an EIN. The reason is that the IRS asks for information surrounding the formation of your company in the EIN application form. You’ll have to provide the legal name of your business and the date it was formed.
Why Was My EIN Application Denied?
There are several reasons why you may be refused an EIN. The first is that the name of the entity you provided is not unique. This is referred to as a “Reference 101 error.”
However, this should not be a problem if you form the business and register its name with the state before applying for an EIN.
Another possibility is that you supplied incorrect information. Let’s say, for instance, you include only the mailing address, and it doesn’t match the location in which you formed the business. Similarly, if your application is incomplete, it will be denied.
Furthermore, if the applicant is already named as the responsible party for another EIN, the application will fail to go through.
Can I Have Multiple EINs?
Sole proprietors can only have one EIN.
If you run a single business with different divisions, you don’t need a separate EIN for each division. You can use one EIN across the entire business entity.
However, if you manage multiple businesses, i.e., separate business entities, each will require its own unique EIN. There isn’t a limit on how many EINs an individual may obtain.
Next Steps
If you haven’t formed the business legally and registered its name with the state, this is your next step. If you’ve already done this, then you can go ahead and start the EIN application.
Are you forming an LLC? Along with registering the business and getting an EIN, there are several more key steps you need to carry out to strengthen your LLC and ensure it remains in good standing. Our comprehensive guide to maintaining your LLC has all of these steps covered if you’d like to take a look.
If you’re ready to launch your business, you’ll need a beautiful website to showcase your business. Check out our guide to the best website builders to find the one best suited for your needs.
