Many entrepreneurs have questions about EINs and whether or not they need one. EINs aren’t necessarily for everyone, so it’s always best to do your research first to ensure your small business is set up for success.
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To help steer you through any uncertainty, we’re going to cover what an EIN is, who needs one, and what it’s used for.
What is an employee identification number (EIN)?
An Employer Identification Number (EIN) is a nine-digit number used by the Internal Revenue Service (IRS) to identify businesses and certain other entities. It’s also sometimes called a Federal Taxpayer Identification Number or Federal Employer Identification Number (FEIN). Business owners use an EIN to conduct activities that would otherwise require a Social Security number (SSN).
Who needs an EIN
The guidelines used by the IRS for determining if an EIN is required suggest that most businesses must have an EIN. Besides, acquiring an EIN is an important step to establishing your business and will help you keep your legal and financial matters in order.
As soon as you launch your business, you’ll need to apply for an EIN. You can wait until you’ve registered your company in the state where you plan to do business, but you’ll need an EIN before you can open a business bank account. According to the IRS, your business must have an EIN if:
- Your company has employees
- Your business is a partnership or corporation
- You have filed or will file tax returns for any of the following: alcohol, tobacco, firearms, employment, or excise
- You withhold taxes on income paid to a nonresident alien
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Or if you’re involved with any of the following:
- Trusts (except with certain exempt organization business income tax returns), grantor-owned revocable trusts, IRAs, or estates
- Plan administrators
- Agricultural cooperatives
- Real estate mortgage investment channels
- Nonprofit organizations
Beyond filing taxes, you may also need an EIN to:
- Open a bank account in the name of your business
- Apply for a credit card in the name of your business
- Apply for business permits
- Apply for a business license
- Apply for a business loan
- Furnish independent contractors with a Form 1099
- Another reason you may need to apply for an EIN is for your privacy. For example, if you’re a contractor who works with a large number of clients, disclosing your Social Security number may expose you to identity theft.
- Instead, apply for an EIN. Doing so won’t eliminate your chances of falling victim to identity theft, of course, but it will likely keep the thief from accessing your personal accounts.
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Benefits of an EIN
As we can see, an EIN isn’t always necessary for everyone but does have its benefits for some. This includes:
- Separating business and personal: Your business finances remain separate, and this can be beneficial when paying your employment taxes or paying employees and yourself.
- Receiving credit: Establishing credit for your business will serve you well as you grow and need possible financing. Instead of using your own credit, you can use your business’s credit.
- Protecting yourself: Using an EIN can protect your personal assets from business failures. For example, in the event that your business files for bankruptcy, your personal assets will be protected.
How to get an EIN
Don’t be fooled by online services that charge you to apply for an EIN. The IRS allows you to apply for free on its website, where it devotes an entire page to EIN application procedures and allows you to get employer ID numbers through EIN online.
The application process is relatively easy, and very few applicants need expert help to complete the form. In most cases, if you apply online Monday through Friday between 7 AM and 10 PM. local time, you’ll receive your EIN immediately. You may also apply by fax or mail with Form SS-4. Here’s a summary of what to expect when filing:
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- Determine eligibility: The IRS has a shortlist of requirements you must meet before you can apply for an EIN.
- Understand the application: This simply means you have to finish the application all in one session and you can’t have more than 15 minutes of inactivity.
- Submit your application: Once you’ve completed your application, you can then download, save, and print your EIN confirmation for your records.
- There is certain information you will need to complete the EIN application, such as:
- The legal business name
- The legal name of the person applying
- The trade name (if applicable)
- The address, including country and state where the business will be
- The name and Social Security number of the responsible party.
How to find your EIN
- According to IRS.gov, you can locate your EIN by:
- Locating your notice from the IRS when you first applied for your EIN
- Looking at any bank account statements or local licenses where you may have used your EIN
- Locating any previously filed tax return in which you used your EIN
- Calling the IRS Business and Specialty Tax Line at 800-829-4933
Common EIN considerations
There are some additional factors to consider when entertaining the idea of acquiring an employee identification number. Some of them include:
- Responsible parties
- Mistakes
- Cancelations
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What is a ‘responsible party” on your EIN application?
The Employer ID Number (EIN) application (Form SS-4) will ask you do identify a “responsible party” for your business. Over the years, there’s been some confusion on the part of business owners regarding the term ‘responsible party.’ Because of that confusion, the IRS issued a clarification.
Now, on the EIN application, instead of asking the applicant to identify the general partner, principal officer, grantor, owner or trustor, it simply asks for the identity of the “responsible party.” Evidently, the IRS wants to be sure that they are talking with the person responsible for the company and that the person responsible signs the application.
What if you make a mistake when applying for an EIN?
Mistakes happen. If and when they do, you will have to submit a letter — preferably on your company letterhead — to the IRS. You’ll need to include your name as the responsible party, your business name, and fill them in on the error. It also would benefit you to include the EIN confirmation notice you received. You can’t call or go online to make changes, and you don’t want to submit a new EIN application (Form SS-4). That will only cause confusion at the IRS.
Can you cancel your EIN?
The short answer is no. Once an EIN is assigned to a business, it forever belongs to the registered business. Even if the number is never used to file a federal tax return, it cannot be reassigned to another business, according to the IRS website.
An EIN can also never be canceled, but the IRS will close the account upon request. The responsible party may reopen the account later by writing to the IRS. Closing the account works similarly to having a mistake rectified — you need to send a letter. The letter should include:
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- The entity’s legal name
- The EIN
- The address of the business
- The reason for closing the account
- Send the letter to this address:
- Internal Revenue Service
- EO Entity
- Mail Stop 6273
- Ogden, UT 84201
Will you ever need to change or get a new EIN?
If you make common changes to your business, like changing the name or address of your business, you won’t need a new EIN. But the IRS states that if the ownership or structure of your business changes, you will need to apply for a new EIN. If you change your EIN, you’ll also need to update the information in your business software
Based on your business structure, here are a few instances when you’ll need to get a new EIN.
Sole proprietorships
If you run a sole proprietorship, you will need to change or apply for a new EIN if you incorporate or acquire partners, if you’re the subject of a bankruptcy, or if you inherit or purchase an existing business that you plan to run as a sole proprietorship.
Partnerships
For a partnership, you will need a new EIN if you incorporate, if you have a partnership that is acquired by one of the partners and will now be run as a sole proprietorship, or if you end one partnership and begin a new one.
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Corporations
If your company is a corporation, you’ll need to change or apply for a new EIN if your corporation is issued a new charter by the secretary of state, if you change the structure of your business to a partnership or a sole proprietorship, if you are or become a subsidiary of a corporation using the parent company’s EIN number, or if you change your business structure and a new corporation is created after a statutory merger.
Limited liability companies
For a limited liability company (LLC), you will apply for a new EIN or change an existing EIN if you create a new multi-member LLC under state law, if a new single member LLC is created under state law and files as a corporation, or if you create a new single-member LLC that is required to file excise taxes.
Estates and trusts
The same applies for both estates and trusts. You will need to change or apply for a new EIN number if you form a trust using funds from the estate (not just an extension of the estate), or if you are a representative of an estate that is run as a business following the death of its owner. For trusts, if there is a change in the identity of the trustee or if the beneficiary or grantor changes his or her name or address you will have to apply for a new EIN.
When you don’t need a new EIN
According to the IRS, you do not need to apply for a new EIN if:
- You change the name of your small business
- Your corporation or partnership declares bankruptcy
- Your corporation is taxed as an S corporation
- You change the way your business entity is taxed on Form 8832
- You change the location of your business (use Form 8822-B instead)
Employer Identification Number FAQ
While we did cover the main points of the Employer Identification Number, there are a few commonly asked questions that we found would be helpful to cover.
Is an EIN free?
An Employer Identification Number is most certainly free, and you should be wary of any service that says otherwise. You can apply for free by going to EIN application procedures where an online EIN application is provided.
Is an EIN the same as a tax ID number?
An Employer Identification Number (EIN) is different from a Tax Identification Number (TIN). The main difference is that the EIN identifies a company while the TIN identifies an individual.
Is an EIN the same as a Social Security number?
A Social Security number is different from an EIN. A Social Security number is used by the government to track an individual’s lifetime earnings and the number of years worked.
Is an EIN a public record?
An Employer Identification Number is indeed a public record and can be searched on the U.S. Securities and Exchange Commission’s EDGAR system.
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Start your business off right with an EIN
A company’s EIN is unique to that business. It’s used to file your business’s tax return and pay your employees, and most banks or credit unions won’t open a business account until they have an EIN. The nine-digit number never expires, and it will never be reissued to another business.
No other business will ever have your EIN assigned to them even if you decide to close your business. An EIN helps protect your business’s identity in the same way your Social Security number helps protect your identity.
