Also known as a Federal Tax Identification Number, an EIN is a unique nine-digit number tied to your business entity. In this way, an EIN is like a social security number for a business. Just because your customers and suppliers know your business by its name doesn’t mean the IRS identifies it in the same way. On the contrary, the government uses an employer identification number (EIN) to identify every business for tax purposes.
Along with ensuring your business is IRS compliant and able to file tax returns, securing an EIN allows you to operate your firm more effectively. Many banks and lenders require businesses to possess EINs in order to open accounts or apply for funding, and most states require that new businesses secure an EIN from the IRS in order to make tax payments. As a result, it’s wise for businesses to apply for EINs before their launch dates.
While the IRS doesn’t mandate that all businesses secure EINs, they are necessary for corporations and partnerships. Additionally, businesses may need to secure EINs if one or more of the following conditions apply:
- It employs workers.
- It files employment, excise, or alcohol, tobacco and firearms tax returns.
- It withholds taxes on non-wage income for non-resident aliens.
- It is involved with trusts, estates, real estate mortgage investment conduits, nonprofit organizations or farmers’ cooperatives.
Even if the IRS does not require your business to hold an EIN, a company may opt to secure one for privacy purposes, or to make it easier to open a bank account or secure funding from lenders.
How to Get an EIN Number
Many small business owners decide to change their firm’s legal structure as the company grows and develops. Whether you’re incorporating, taking on a new partner, changing names or locations or transferring ownership, you will likely need to secure a new EIN. Fortunately, the IRS makes it relatively simple to secure an employer identification number.
The first step in obtaining an EIN is setting up a viable business entity. Once you’ve established a business, you can visit the IRS website and click the “Begin Application” button. You will then have the chance to identify the appropriate legal and tax structures for your firm. Common business structures include limited liability companies, S-corporations and partnerships.
If you select an LLC as your business type, the site will ask you to provide the number of LLC members and the state in which you’re located. Owners should also be prepared to explain why they’re applying for EINs. For example, you may be starting a new business or changing your current legal structure.
You will also be asked to choose a primary contact person and business category, as well as supply your business’ legal and trade name information. Follow the steps on the website, and be sure to answer all questions honestly and completely. When you’ve finished your application, you will be asked to select whether you’d like to receive your EIN confirmation letter online or by regular mail.
Wondering About Your EIN Eligibility?
If your main business headquarters is located in the U.S. or one of its territories, you can apply online to see if you qualify. Once your application has been approved, the IRS will issue you a new EIN. If you’d prefer not to apply online, you can also fax or mail in your request by submitting a Form SS-4, or call to apply by phone.
For more information about getting an EIN, visit the IRS website and enter your valid Taxpayer Identification Number (TIN). Remember that applying for an EIN is and should be free. If a site or service attempts to charge you for this service, it may be wise to move along.