What is an EIN?
An
Employer Identification Number (EIN) is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to businesses operating within the United States. It is used for tax administration purposes and serves as the business equivalent of a Social Security Number (SSN) for individuals.
Tax Reporting: It is required for filing federal tax returns.
Business Banking: Most banks require an EIN to open a business bank account.
Hiring Employees: If you plan to hire employees, an EIN is mandatory for payroll reporting.
Business Licenses and Permits: Some licenses and permits require an EIN as part of the application process.
Credit Purposes: Establishing business credit often requires an EIN.
Who Needs an EIN?
Not all businesses are required to have an EIN, but it is essential for the following types:
Corporations: Both S and C Corporations
Partnerships: All partnerships
LLCs: Limited Liability Companies with employees or multiple members
Sole Proprietorships: If they have employees, operate as a corporation or partnership, or file certain tax returns
Non-profits: All non-profit organizations
How to Apply for an EIN?
Applying for an EIN is a straightforward process. Entrepreneurs can apply through the
IRS website, by mail, fax, or phone. The online application is the quickest method and provides an EIN immediately upon completion. Here are the steps:
Determine your eligibility: You must have a valid Taxpayer Identification Number (SSN, ITIN, or EIN).
Complete the application: This involves providing details about your business, such as its legal name, structure, and activities.
Submit the application: Online applications are processed immediately, while mail or fax applications may take up to four weeks.
When to Apply for an EIN?
It is advisable to apply for an EIN as soon as you start planning your business. Having an EIN early on will make it easier to set up a
business bank account, apply for licenses, and hire employees. It is especially important to have an EIN before filing your first tax return.
What if I Lose My EIN?
If you lose your EIN, you can retrieve it by looking at previous tax returns, bank account statements, or licensing documents where the EIN was used. If you still can't find it, you can contact the IRS directly for assistance.
Can I Change My EIN?
In most cases, an EIN is permanent and cannot be changed. However, if your business undergoes significant structural changes, such as converting from a sole proprietorship to a corporation, you may need to apply for a new EIN. Always consult the
IRS guidelines to determine if a new EIN is required.
Conclusion
Understanding and obtaining an EIN is a critical step for any entrepreneur. It not only ensures compliance with tax regulations but also streamlines various aspects of business operations. Whether you are starting a new business or restructuring an existing one, an EIN is an indispensable tool in your
entrepreneurial journey.