What is An EIN, and Do You Need One?
By Bazal Razzaq
Chief Editor
Updated: July 18, 2023
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There are so many important factors to consider while starting an LLC. One of them is getting an Employer Identification Number(EIN). But what is an EIN? Do you really need one for your Limited Liability Company(LLC)? Our article for today discovers just that! We’ll answer your questions in the simplest of terms without complicating anything.
BTW, did you know an Employer Identification Number is the same as a Social Security Number(SSN) for US residents? In the same way, SSNs identify US individuals, an EIN identifies US business owners. And while most people remember their SSN by heart, they’re often clueless about what an EIN is! So if that felt too true, don’t worry. You’re not alone!
Before we move ahead with the ‘what’ and ‘whys’ of our article, it’s important to remember that as a business owner, you’ll need your identification number to open a professional bank account, hire employees, or apply for business licenses and permits. So, yes, it’s a step you can’t just skip or put on hold for later.
Now having that out of the way, let’s start with the basics.
What is an EIN?
An EIN is a unique nine digit issued by the IRS (Internal Revenue Service) in America. It provides official identification for taxation and is quite similar to the SSN. This identification number recognizes the business for legal and financial purposes.
You need an EIN if your business has employees, functions as a corporation or partnership, or withholds taxes on income paid to a nonresident alien. It also comes in handy when filing tax returns, opening business bank accounts, applying for business licenses and permits, and conducting other business operations.
Not just this, but it also helps you separate personal and business finances.
Who is Eligible for an EIN?
You’re eligible for an EIN when and if:
- Your business has employees, including part-time, full-time, and temporary employees.
- Your business functions as a corporation or partnership. These entities require identification for legal and tax purposes.
- You own a non-profit organization like a charity or a religious group.
- You’re a nonresident alien who must report and pay taxes on income earned in America.
- You’re a part of estates or trusts created as part of an inheritance or financial planning.
Who can Apply for an EIN?
All forms of business types can apply for a federal EIN, including,
- Limited Liability Company(LLC)
- Sole Proprietorship
- Government agencies
- Non-profit Organization
- Estates and Trusts
- S-Corporations
- Partnerships
Only some people need an EIN. You can continue using your Social Security Number instead of the EIN if you operate as a sole proprietorship without employees. But, in most cases, having an employer identification number is often beneficial as it simplifies business operations. It also ensures compliance with tax regulations.
How To Apply For An EIN?
To apply for an EIN, you can follow the steps mentioned below:
- Check if you’re eligible: Before applying, ensure you meet the criteria for getting an EIN. As mentioned above, you need it if you have employees, operate as a corporation or partnership, or hold back taxes on income paid to a nonresident alien.
- Get Form SS-4: You can obtain Form SS-4 (an application for Employer Identification Number) from the IRS website or by contacting the IRS directly through fax or email.
- Fill out the Application: You need to fill in the required information on Form SS-4. Required details include your business’s legal name, mailing address, type of entity, reason for applying, and details of the responsible party.
What’s a responsible party?
A responsible party is someone typically authorized to handle the business’s financial and legal matters.
- Choose an Application Method: For picking your application method, you have the following options:
- Online: The most convenient and quickest method is applying online through the IRS website. There’s enough information available that will guide you through the process. Once you complete it, you will receive your EIN immediately.
- Mail: If you prefer to submit your application offline, you can mail Form SS-4 to the address provided. The processing time for mailed applications is usually longer, so your EIN can take a few weeks.
- Fax: You can also fax your completed Form SS-4 to the fax number. The processing time for faxed applications is also longer than the online method.
- Phone: In some particular circumstances, you can apply by phone. Contact the IRS to check if this option is available for you.
- Submit your Application: Finally, submit the application using your chosen method. If you apply online, you will receive an EIN immediately after completing the process. While for mail, fax, or phone method, the processing time may vary.
- Protect Your EIN: Keep your identification safe and use it for all business-related transactions. Protecting your EIN is important to prevent identity theft or fraudulent activities.
Remember, the steps we provided are general guidelines. We’d advise you to contact the official IRS website or seek professional advice for instructions, information, or any updates regarding the application process.
Are there any benefits of an Employer Identification Number?
An EIN offers many benefits that can help secure and ease your business operations. We’ve listed some of them below:
- Identification: Yes, the obvious one. An EIN will help in identifying your business. It basically acts as a unique identifier for your LLC for legal and financial transactions.
Simply put, it differentiates your business from others, avoiding confusion and helping in record keeping.
- Hiring Staff: It goes without saying at this point, but if you need employees, you need to obtain a federal employer identification number. It allows you to report and pay employment taxes to the IRS and appropriately manages your employees’ tax withholdings and contributions.
- Taxes: An EIN is important for filing business tax returns, reporting income, and paying taxes. With its help, you can comply with tax regulations and fulfill your business owner’s responsibilities.
- Professional Image: It enhances your professional image and displays that you’re a legal entity. Clients, partners, and investors see you as a more credible business if you have an EIN.
- Business Bank Accounts: Banks in America usually ask for a federal EIN to open a business bank account. If you’ve been a constant on our blog, we support keeping your personal and professional finances separate. Having two different bank accounts for private and business use helps track your business income and expenses.
- Legal Protection: Having an EIN ensures compliance with legal and regulatory requirements. It helps you stay on the right side of the law and prevents potential fines or legal issues that may come with incorrect or incomplete business information.
How Do I Verify My EIN?
You can call the IRS’ Business & Specialty Tax Line to verify your Federal EIN. You can dial them at (800) 829-4933. They’re available Monday to Friday from 7 AM to 7 PM local time.
Please remember that the IRS can only give your business’s EIN to someone authorized to receive it, such as the sole proprietor, corporate officer, a partner in a partnership, or someone similar. The IRS does this to protect the security of your business information.
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Final Word
In conclusion, obtaining an EIN is an essential step for businesses in America. It offers many benefits and simplifies your business’s various legal, financial, and operational parts.
We’re hoping you’d receive help and insight from this blog, as our team at BestLLCSolutions is working tirelessly to provide you with any help or assistance in your journey of LLC formation.
Frequently Asked Questions (FAQs)
No, applying for an Employer Identification Number is free of charge.
If you no longer need an EIN, you can close the account by informing the IRS in writing.
Single Member LLCs don’t need an EIN unless they have employees or have chosen corporations as their tax structure. Conversely, Multi-Member LLCs need one to run their business.
If you are the sole owner/member of an LLC, you can use your SSN instead of an EIN.