Introduction
Starting a business can be an exciting and fulfilling venture. But before you can begin operating your business, there are a few steps you need to take. One of the most important steps is to apply for an EIN. EIN stands for Employer Identification Number, and it is a unique nine-digit number assigned by the IRS to businesses operating in the United States. In this article, we will take a closer look at EIN, its importance, why you need it, and how to apply for it.
What is EIN?
EIN is a unique nine-digit number assigned to businesses by the IRS. Also known as a Federal Tax Identification Number, it is used to identify businesses for tax purposes. EIN is issued to businesses that have employees, are corporations or partnerships, have a Keogh plan, or are involved in certain types of organizations like non-profits, trusts, and estates.
The EIN is like a social security number for businesses. It is used to track and identify businesses, and it helps the IRS to determine tax liability. EINs are also used to obtain bank accounts, apply for business licenses, and file tax returns.
Why is EIN Important?
Getting an EIN is one of the most important steps you need to take when starting a business. Here are some of the reasons why an EIN is important:
1. It is a requirement to open a business bank account
For businesses to operate, they need a bank account. However, banks require an EIN to open a business account. This is because the EIN serves as a unique identifier for the business, and it helps the bank to track its transaction history and tax liabilities.
2. It is a requirement to apply for business licenses and permits
Most states and municipalities require businesses to obtain licenses and permits before they can operate. These licenses and permits often require an EIN, as it is used to identify the business for tax and regulatory purposes.
3. It is a requirement for tax purposes
All businesses are required to file tax returns and pay taxes. The EIN is used to identify the business for tax purposes, and it helps the IRS to track tax liability, including income tax, employment tax, and excise tax.
4. Protects against identity theft
Having an EIN reduces the risk of identity theft. It serves as a unique identifier for the business, and it is used to track financial transactions and tax liabilities. This makes it difficult for someone to steal the business’s identity and use it for fraudulent purposes.
How to Apply for EIN
Applying for an EIN is a straightforward process, and it can be done online, by phone, or by mail. Here are the steps you need to follow:
1. Determine if you need an EIN
Businesses that have employees, are corporations or partnerships, have a Keogh plan, or are involved in certain types of organizations like non-profits, trusts, and estates are required to have an EIN. If you are not sure whether you need an EIN, you can use the IRS EIN Assistant to determine if your business requires it.
2. Choose the application method that suits you
You can apply for an EIN online, by phone, or by mail. The online application is the fastest and most convenient way to apply, and you can receive your EIN immediately after completing the application. The phone application is also fast since you can receive your EIN within a few minutes. The paper application takes longer since it has to be processed manually, and it can take up to four weeks to receive your EIN.
3. Gather the necessary information
To apply for an EIN, you will need to provide the following information:
– The legal name of the business
– The mailing address of the business
– The name and social security number of the responsible party
– The type of business entity (sole proprietorship, partnership, corporation, etc.)
– The reason for applying for the EIN
4. Apply for the EIN
Online Application:
To apply for an EIN online, you will need to go to the IRS website and click on the “Apply for an EIN Online” link. You will then be asked a series of questions about your business and its ownership. Once you complete the application, you will receive your EIN immediately.
Phone Application:
To apply for an EIN by phone, you can call the IRS Business and Specialty Tax Line at 800-829-4933. You will be asked to provide the necessary information, and once your application is complete, you will receive your EIN within a few minutes.
Mail Application:
To apply for an EIN by mail, you will need to complete and mail the SS-4 Form to the IRS. The form can be downloaded from the IRS website, or you can request a by calling the IRS Business and Specialty Tax Line at 800-829-4933. Once your application is processed, you will receive your EIN by mail.
Updating EIN Information
It is important to keep your EIN information up to date. If anything changes about your business, such as its name, address, ownership, or structure, you will need to update your EIN information with the IRS. Here are the steps you need to follow:
1. Determine what changes need to be made
If anything changes about your business, it is important to determine what changes need to be made to your EIN information. This could include changes to the business name, address, or structure, or changes to the responsible party.
2. File the necessary forms
To update your EIN information, you will need to file the necessary forms with the IRS. The form you will need to file depends on the type of changes you need to make. For example:
– To change the business name, you will need to file Form SS-4 and write “Name Change” at the top of the form.
– To change the business structure, you will need to file the appropriate form for your business entity, such as Form 8832 for LLCs or Form 2553 for S corporations.
– To change the responsible party, you will need to file Form 8822-B.
3. Notify other agencies
Once you have updated your EIN information with the IRS, it is important to notify other agencies, such as your state and local tax authorities and the Social Security Administration.
Conclusion
Applying for an EIN is an important step for businesses that want to operate legally in the United States. It is required for tax purposes, to obtain business licenses and permits, and to open a bank account. While the application process is straightforward, it is important to keep your EIN information up to date. By following the steps in this article, you can obtain an EIN and ensure that your business operates legally and efficiently.
Using an Employer Identification Number (EIN)
An Employer Identification Number (EIN) is used as a way to identify and individual or company who needs to pay withholding taxes on employees.
A EIN is also known as a
· Federal Tax Identification number
· Tax Identification number (TIN)
· Federal Employer Identification number (FEIN)
An EIN is a nine digit number written in form XX-XXXXXXX that is unique to a particular employer and is assigned by the Internal Revenue Service for identification purposes.
The two digit prefix of an EIN number indicates which campus assigned the EIN number. Before 2001, the two digit prefix indicated the geographic area of the business. However, this is no longer applicable.
EINs are used by sole employers, corporations, government agencies, sole proprietors, partnerships, trusts, non-profit organizations, estates of decedents, certain individuals without employers, and other business entities. Each of these only requires one FEIN number
An employer needs a EIN if an employer:
· Has employees
· Is involved in trusts, estates, non-profit organizations, real estate mortgages investment conduits, plan administrators, or farmers’ cooperatives
· Runs the business as a partnership or corporation
· Has a Keogh plan
· Files Excise, Employment, or Alcohol, Tobacco, and Firearms tax returns
· Withholds taxes other than wages on a non-resident alien employee
If the employer does at least one of these things, a FEIN is required.
Applying for an EIN
A EIN can obtain by completing an application either online, through a toll-free telephone service, through fax or by mail with From SS-4. The internet application is the preferred method for EIN application by customers. Once completed, the FEIN is issued immediately. However, an immediate EIN number can also be received through by phone from 7AM to 10PM local time during the weekdays. Applying by fax takes up to four business days while a mail application takes up to one month.
In certain circumstances, a business may need a new EIN. Generally this is due to any sort of structure change or just a change in ownership. Some changes that require EIN changes include:
For Sole Proprietors
· Being subject to a bankruptcy proceeding
· Taking in partners and becoming a partnership
· Incorporating
· Purchasing or inheriting an existing business that will be operated as a sole proprietorship
For Corporations
· Receiving a new charter from the secretary of state
· Being or becoming a subsidiary of a corporation using a parent’s EIN
· Changing to a sole proprietorship or partnership
· Creating a new corporation after a statutory merger
For Partnerships
· Partnership becoming a sole proprietorship
· Incorporating
· Ending an old partnership and beginning a new partnership
Avoiding Common FEIN Problems
Many of the common problems involving an EIN are experienced by incorrectly filling out paperwork. In order to prevent this, remember to:
· Always include a EIN, SSN, or ITIN on Form SS-4
· Use a full legal name on Form SS-4 as well as the EIN provided consistently
· Inform the IRS of business name changes
· If the company uses a P.O. Box, use that instead of the physical address as the mailing address
