Employer Identification Number
So you’ve started a new business and are searching the references to EIN, but aren’t sure what it is. Every business with employees needs to have an employer ID number (EIN), even if you have no employees, you will apparently need to have an EIN when you start your business. Here’s a complete outlook of what an Employer Identification Number (EIN) is, what it is needed for, who is eligibility for it and how you can get one of your own.
What Is An EIN?
An EIN is a unique identification number that is allocated to a business so that the Internal Revenue Service can easily identify them. The Employer Identification Number is generally used by employers to report taxes. It is a nine-digit number. The number comprises information about which state the corporation is registered in. You can apply for an EIN online or via mail. A business needs to mention its Tax ID on bank account applications, employment tax reports, income tax forms, and payments. A Tax ID for a business delivers the same objectives as a Social Security number for an individual. It is also known as a Federal Tax Identification Number. When it is used to identify a corporation for tax purposes, it is commonly referred to as a Tax Identification Number.
Who Needs An EIN?
According to the IRS, if your answer is yes for any of the below-mentioned questions you need an EIN:
- Do you own an LLC, a corporation, partnership or a non-profit organization?
- Does your business has employees (including your children or spouse)?
- Do you file an Employment, Alcohol, Tobacco, Excise or Firearms tax return?
- Have you taken a Keogh plan (a tax-deferred retirement plan for self-employed individuals)?
- Are you associated with an estate, trust, real estate mortgage investment conduits, farmers co-op, or plan administrator?
- Do you withhold taxes on your income other than the wages paid to a non-resident?
Apart from this, you may also require an EIN if you are planning to do the following:
- Opening a Business Bank Account
- Getting a Business Loan
- Asking vendors to pay you for the services or goods you provided. The vendor may ask you for a W-9 form before paying. The W-9 form gives the vendor information regarding the tax returns. You need an EIN to mention in a W-9 Form to identify your business.
- Getting a business credit card.
- Applying for Government licenses, permits or contracts.
- Building business credit. Suppliers and vendors, check business credit before working with you. Thus, for building a business credit score, you need an EIN.
- Supplying Form 1099s to independent contractors. If you are paying $600 or more to a contractor in a year, you need an EIN. It is required if you don’t even have employees.
What Are The Benefits Of An EIN?
- An EIN manages personal and business finances separately: It is vital to keep your personal finances separate from business finances. With an EIN, you can do this easily. When you use an EIN, the banks, IRS, credit card companies, and others with whom you are doing business can track your business finances separately from your personal finances.
- Reduce identity theft: Social Security Number is used by sole proprietors instead of EIN. By using SSN, you are more vulnerable to identity theft. This does not mean that an EIN would eliminate your chances of falling victim to identity theft (particularly since small business is a common target), but at least your personal accounts will be safe. Don’t worry that you’ll need to safeguard your EIN since it is only used as a federal identifier.
- Preserve limited liability for single-member LLCs: Do you own an LLC? One of the main reasons for choosing an LLC as your business entity is that you are not personally liable for the business’ obligations or debts. With an EIN, you can separate your business and personal liabilities. It helps you in preserving limited liability if your business is ever sued. Also, other business structures such as corporations and multi-member LLCs, which offer limited liability are required to have an EIN.
How to Apply For EIN?
The IRS allows you to obtain an EIN free of cost from their website. It means that you can easily get the EIN online. An entire page is dedicated to EIN application procedures. The process is very quick and easy. All you need to do is to complete the online form. If you apply during the working hours, i.e., from Monday to Friday between 7 a.m. and 10 p.m., you will receive the EIN immediately. You can also apply via mail by completing Form SS-4.
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When Do You Need A New EIN?
In most of the cases, once you obtain an EIN, it will be yours for the rest of your business life. However, there are some particular cases where you would have to get a new EIN:
- If an old partnership is terminated and a new partnership is started.
- If you change your business structure (e.g., a sole proprietorship becomes a corporation or partnership).
- If you become a subsidiary of a corporation.
- If you purchase or inherit a business.
- If the corporation receives a new charter from the secretary of state.
- If sole proprietorship declares bankruptcy.
You do NOT need a new EIN for the following:
- If you change your business name or location.
- If you operate multiple businesses.
- If your corporation or partnership declares bankruptcy.
How to Get Your EIN When It Is Misplaced?
Try to keep your EIN in a safe place. But what happens if by mistake you lose your Employer Identification Number or forget it? If you have previously applied for an EIN but can’t find the number, there are various ways to track it down.
You can ask the bank representative to retrieve your EIN if you have used your EIN to open a business bank account.
Likewise, if you filed a past tax return for your business, you can locate your EIN by looking up your tax return.
If both of these options don’t work for you, you can call the IRS’ Business & Specialty Tax Line at (800) 829-4933 and select EIN from the list of options. After answering some security questions, you will get the EIN.
It is easier to call during the hours of operation. They are 7:00 a.m. – 7:00 p.m. local time, Monday to Friday.
While having an Employer Identification Number won’t give you any tax benefits, it can establish you as an independent businessperson. So make sure to get yours, and if you have questions regarding it, you should always consult an attorney.
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