IRS Tax id EIN Number

Federal Employer Identification Number (EIN) / Tax ID Number

When you form a business – be it a sole proprietorship, a partnership, or an LLC – one of the first steps you need to take is to obtain an employer identification number (EIN), also known as a Federal Tax Identification Number. Otherwise, you may encounter questions concerning your business’ legitimacy, especially by government agencies. In fact, in order to file your federal taxes or to even hire employees, the IRS requires certain businesses to have an EIN number.

What is an EIN Number?

An employer identification number (EIN) is a nine-digit code that is issued to you by the Internal Revenue Service (IRS) to identify your business. Being issued an EIN is similar to being issued a social security number for your business, except it helps establish your businesses’ identity as a legal U.S. entity similar to how a social security number is used to establish an individual’s U.S. citizenship, such as when applying for a passport or federal student loans.

And similar to an individual taxpayer identification number (ITIN), Employer ID numbers are also used to keep track of your business’s contributions for tax purposes (including information like your federal income tax payments) just like social security numbers and other tax identification numbers; however, there are a few marked differences.

Employer identification number

EINs vs Social Security Numbers (SSN)

An SSN is often used to report employees’ year-end income by their employers, which can then be used by employees to prepare their personal income tax returns. However, it can also be used by single business owners for business identification and tax purposes, as opposed to an EIN.

EINs vs Individual Taxpayer Number (ITIN)

The IRS also issues an Individual Taxpayer Identification Number (ITIN) to handle payments and tax forms; however, they differ from employer identification numbers in that they are only issued to individuals who can neither receive an EIN or a social security number, such as the husband, wife, or dependent of a U.S. citizen, U.S. resident aliens, and non-resident aliens.

An Individual Taxpayer Identification Number also differs from an EIN in that it is only used for tax return purposes and not identification purposes, so it can’t be used to establish credibility. Additionally, an ITIN can be issued on either the state or federal level, but an EIN is strictly a federal tax number. Just remember, if you need something for federal tax purposes, you are required to have an EIN.

State Tax Identification Number

As mentioned, the EIN is used to establish business identification on a federal level; however, there is also a state tax identification number, which is used to identify businesses on the state level.

In fact, if your business has employees, provides services, offers goods, or has an income in a state, then you will most likely also need to apply for a state tax identification number in the state where your business operates for state identification purposes as well as to pay state taxes.

Why You Would Need an EIN

Though all business entities can benefit from an EIN, there are times when an EIN is required by the Internal Revenue Service, including if your business has employees or if the business has its own existence separate from you. You also need an EIN when at least one of the following points applies to you:

  • Your business is a single-owner business with employees
  • Your business is a partnership
  • Your business is a single-member LLC
  • Your business is a multiple-member LLC
  • Your business is an LLC taxed as a corporation
  • Your business deals with estates, trusts, employee plans, and the like
  • Your businesses manages and reports payroll taxes
  • You change your business from a sole proprietorship to another type of business

 

When DON’T you need an EIN? For non-profits and charity groups, an EIN is not necessary. Instead, you should obtain an IRS Determination Letter that proves your organization has been granted tax exempt status by the IRS.

Let a professional file your federal EIN number today

Let a professional file your federal EIN number today

Your Business is a Single-Owner Business with Employees

As stated earlier, any business with employees, including a single-owner business, will need to apply for an EIN for tax purposes. This also includes sole ownership businesses who intend to recruit employees within the following 12 months.

Your Business is a Partnership

If your business is a partnership, meaning it has two or more individuals working together who have each invested labor, property, or money into the business and expects split its profits as well as share in the losses of the business or trade, then you need an EIN. This is true whether the partnership is unincorporated, such as in limited partnerships or general partnerships, or it is incorporated.

Tax id number

Your Business is a Single-Member LLC

If your business is a single-member LLC, meaning you have elected to have your single-owned limited liability company taxed as a corporation, then you, too, must apply for an EIN for federal tax and identification purposes, solely if you plan to enlist and provide compensation for employees within the following 12 months.

EIN

Your Business is a Multiple-Member LLC

If your business is multiple-member LLC, meaning more than one individual manages the limited liability corporation, then you also need to apply for an EIN. This holds true whether the multiple-member LLC chooses to hire employees or not.

IRS Tax ID EIN Number

Your LLC is Taxed as a Corporation

If your business operates as an LLC that opts to be taxed like corporations, such as an S corporation or C corporation, then an EIN is also required of your business because these type of organizations are considered their own legal entity, and they also almost always involve employees, so they are identified and taxed accordingly.

Your Business Deals with Estates, Trusts, Employee Plans, and the Like

Estates, trusts, employee plans, and the like also qualify as their own legal entity; therefore, any business that deals with these type of entities are required by the IRS to obtain an EIN for tax purposes.

Your Business Manages and Reports Payroll Taxes

If your business manages payroll forms or fills out tax forms or any other type of forms for individuals employed by your business, you will require an EIN for reporting and paying employment taxes, such as federal payroll taxes, medicare taxes, social security taxes, and unemployment taxes.

You Are Changing your Business from a Sole Proprietorship to Another Type of Business

If you have a sole proprietorship business, though you may not be required to have an EIN at the start, provided you have no employees, there are certain times when you will need to file for an EIN for your single-owner business, such as when changing your sole proprietorship business to a partnership because it then qualifies as its own legal entity. This also applies to single-member LLC businesses.

If your sole proprietorship becomes incorporated, or you begin offering employee plans, such as a pension plan or a retirement plan, you will also need to apply for an EIN.

However, for simple changes to your single-owner business, such as a change of address, you open more locations or add more businesses, or your business takes on a new name, you do not need to file for a new EIN. However, you do need to inform the IRS of these changes.

Other Times When an Employer Identification Number May be Useful

These are just a few examples of when an EIN may be required for your business by the IRS; however, there are also other times when an EIN may be useful, including:

It Can be Used to Offer More Safety for Sole Proprietors

Though EINs are not required for sole proprietors or single-member LLCs who operate as a single business owner without employees, there are times when some proprietors still find them useful. For instance, it can be used to help establish you as a serious independent contractor or business owner, which can help improve the way your business is viewed. An EIN can also be used in place of your personal social security number to help safeguard against identity theft.

It Can Help You Establish Credit

In most cases, you will also need an EIN to help establish credit for your business. For instance, in order to open a bank account using your business name, the bank will require you to have an EIN. Lenders also require an EIN when applying for business loans.

It Can Help You With Obtaining Business Licenses and Permits

Again, even though your business may not be required to have an EIN, when applying for business licenses and permits, some areas will require you to have one as a way to identify your business.

How Do You Get an EIN?

Applying for an EIN takes just a few steps; however, you first need to be sure your business fits the criteria for eligibility for an EIN.

Determining Your Eligibility

In order to apply for EIN, your principal business must be located in the United States or a territory of the United States. The applicant must also have a valid social security number or other tax identification number. Government websites like the IRS’ also detail other requirements needed to become eligible for an EIN application.

How to get an EIN

You Must File as the Responsible Party

When applying for an EIN for your business, the IRS requires you to file as the responsible party, which proves that you have the power to do so. This requirement is designed to help prevent someone without the right to act on behalf of the business from obtaining an EIN. In other words, filing as the responsible party serves as proof that you are an actual owner who manages the company; therefore, you have the authority to file for an EIN.

The responsible party must also be an individual and not an entity unless it is a government entity in which case the requirements vary.

If you are applying for an EIN on behalf of a small business, the responsible party would be a general partner, a principal officer of the business, the actual owner, the grantor, the trustor, or the like.

The IRS also only allows responsible parties to file for one EIN per day.

Filing as a Tax Exempt Organization

Organizations that are tax-exempt, whether you are required to apply for a formal ruling or not, should be sure they are legally formed prior to applying for an EIN.

Complete the Application

To file for an EIN, the responsible party must complete a form SS-4 for their type of business entity, such as a corporation, sole proprietor, partnership, etc. The form SS-4 is available through the IRS.

In many cases, the responsible party must also have a valid Social Security Number, Individual Taxpayer Identification Number, or Employer Identification Number in order to apply. If you don’t, you should also obtain and complete an SS-5 form for your SSN and a W-7 form for your ITIN.

Your business can also use a Third Party Designee to apply for the EIN; however, the taxpayer must permit the Designee to do so on their behalf. Once the EIN is given to the Designee, their authority ends.

The application form must also be completed line-by-line in order to prevent any issues or delays with processing the application.

Let a professional file your federal EIN number today

Let a professional file your federal EIN number today

Submit the Application

Once you have successfully completed the EIN application form with the necessary information, the documents must then be filed with the appropriate IRS Service Center. After which, it will take anywhere from one day to up to 6 weeks to receive your EIN, depending on how you apply.

How a Filing Service Can Help

In order to successfully receive an EIN, all filing requirements must be met and instructions must be followed accurately. One minor issue could result in you having to sign up all over again. In fact, the IRS reports that there are many common errors often made by companies, such as selecting the wrong entity classification, that delay or prevent them from successfully obtaining an EIN.

An EIN filing service understands the ins and outs of applying for an EIN, including the appropriate entity types, and can help ensure customers understand the correct business classification for their organization and other important information to prevent any delays with the processing of their application.

In fact, when you choose to have a filing service apply for your EIN, the service will handle all the paperwork for you, which can help you avoid information overload at such a crucial time in your business’ development and help free up time for other matters.

Simply contact the filing service, and a team member will contact you shortly to gather specific information concerning everything your business needs to successfully file for an EIN. Armed with the necessary information, the service will then handle all aspects of filing your EIN/Tax ID on your behalf.

Many times, they can even apply for your EIN online, in which case you can receive your new EIN in as little as one day.