When should you get an ein number

Getting an EIN number can help you identify your business entity. Most companies need this federal employee identification number to conduct business. An EIN is a nine-digit number that refers to only your business or non-profit entity. It is your business’s social security number.

This number allows the IRS to identify your business and attach it to the correct business name for tax purposes. Just a unique business name is not enough.

In addition to ensuring that your business is compliant with the IRS and they are able to identify your filed tax returns, securing an EIN also helps you operate your company more effectively.

Most banks and other financial institutions require companies and non-profits to register for an EIN before opening any accounts or applying for any loans. Most, but not all, states require that new businesses secure an EIN from the IRS in order to make tax payments. It makes some business ventures a lot easier if you apply for an EIN right off the bat.

The IRS only requires corporations and partnerships to register for an EIN, but all businesses should get one. If you plan to be paying employees, you have to have an EIN in order to have a way to legally pay your employees.

If you are a one-person company with no responsibility of paying others, you may be able to get away with running your business as a sole proprietor. Sole proprietors may use their social security number if they would like, but they can also get an EIN for their business purposes. If you are an individual who has hired an employee, such as a household employee, an EIN is required.

In addition to an EIN, your business might also need a state tax ID number, which is a separate number assigned by the state government.

When Should You Register for an EIN?

If one of the following applies to your business, you should register for an EIN:

1. It has employees it must pay.
2. It files employment tax returns.
3. It files excise tax returns.
4. It files alcohol, tobacco, and firearms tax returns.
5. It withholds taxes on non-wage income for non-resident aliens.
6. It is involved with trusts, estates, or real estate mortgage investment conduits.
7. It is a non-profit organization.
8. It is a farmers’ cooperative.

How to Obtain an EIN

Obtaining an EIN through the IRS is free. There is no need to pay another party for the service. It is not necessarily an easy or quick process, however, so get started now. Now that EIN (Tax ID) obtainment is available via the web, businesses no longer need to apply the “old way” via fax or by mail.

The IRS makes it simple to apply for and obtain an EIN. Your options for doing so include applying online, through fax, via mail, and over the telephone. Most people prefer to obtain an EIN online because it is fairly easy.

No entities are excluded from obtaining an EIN. If your business changes its entity structure, such as changing from an LLC to an S corp, a new EIN is required because a new tax ID is necessary. The IRS treats different entities differently depending on the setup and tax structure. Different entities include: LLCs (Limited Liability Company), Corporation, Partnership, Trusts, Estates of Deceased Individuals, and Non-Profit Organizations.

If you need to change your EIN or other tax ID after it has been assigned, you can call the IRS-EIN line at 1-800-829-4933. You should call and make these changes if any of the following occur:

1. The business’s name
2. The business’s address
3. The date that the business started
4. A change in contact information for officers/members

If an LLC has multiple members, a single representative must be named responsible for obtaining a Tax ID number on behalf of the LLC.

Even if the IRS does not require your business to hold an EIN, a company may opt to secure one for privacy purposes. Plus, an EIN is required in order to apply for business licenses.

If you need help with getting an EIN number, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

An Employer Identification Number (EIN) is mandatory for some businesses and optional for others. But in general, an EIN is necessary for independent contractors and small business owners. Understanding who needs to apply and the benefits that come with having an EIN can give your business a real advantage.

What Is an EIN?

An EIN is an exclusive nine-digit number assigned to your business by the Internal Revenue Service and identifies your business for tax purposes. It's like your Social Security Number, except it's designed for businesses only. It's necessary for paying employees and managing your business taxes. EINs are issued by the state and used on state tax forms.

Related: How to Close an LLC

Who Is Required to Have an EIN?

The following business structures are required to have EINs:

• Corporations
• Partnerships
• Limited liability companies

Sole proprietorships, in general, are not required to have an EIN. However, an EIN is required if:

• You have employees or plan to hire them.
• You want to offer a Keogh or solo 401(K) retirement plan
• You're inheriting or thinking of buying a sole proprietorship
• You need to file for bankruptcy

The IRS also requires EINs for trusts created by estate funds and representatives who oversee an estate that operates a business after the owner's death.

Independent contractors, freelancers, people running small businesses out of their homes, and people with side jobs who capitalize on the gig economy are generally not required to get an EIN. Still, there are plenty of reasons why they should.

Why Can't I Just Use My Social Security Number?

When the IRS mandates an EIN, you don't have a choice. But here's a key reason why it's a good idea to use an EIN for business even when it's not required: avoiding identity theft.

• An EIN helps keep your personal and business finances separate. It reserves your Social Security Number for personal needs and keeps identity thieves from ripping off your personal assets. The IRS recommends using your Social Security Number only if you have a very simple business structure and no employees.

What Other Advantages Come With Having an EIN?

In some ways, an EIN is one of the best-kept secrets in the business world. Surprisingly, applying for one isn't on every entrepreneur's to-do list. An EIN makes it easier to:

• Apply for a business license. This varies by state, but many states require an EIN before you can be licensed to conduct business.
• Get a business bank account. More banks require an EIN to open a business bank account, along with the appropriate business license to show that you're permitted to operate in your area. Depending on your business structure, you may have to show articles of incorporation or a “doing business as" (DBA) certificate.
• Take out a bank loan. Most banks require you to have a business account before you apply for a loan.
• Hire employees. Having employees means an EIN is absolutely required, and you can't set up your payroll system without one.
• File your taxes. If you are required to have an EIN and don't have it before you file your taxes, you open yourself up to all kinds of tax penalties.
• Boost credibility. An EIN establishes you as a serious, responsible person who's committed to your business.

What's the Difference Between an EIN and a FEIN?

A FEIN is a Federal Employee Identification Number. It serves the same purpose as an EIN, except the federal government issues it instead of the state. A FEIN also allows you to enroll in the electronic federal tax payment system, where you can easily make tax payments over the phone or online.

How Do I Apply for an EIN?

Here's the good news. Applying for an EIN is easy and free. Establish your business type prior to requesting an EIN. For example, if you plan to operate your new business as an LLC, create the LLC prior to applying for an EIN. You can apply online on the IRS's website, or you can use an independent service to complete the process for you. You can apply online, by fax, or by mail with the IRS. If you apply by fax or mail, you will need to complete the Form SS-4, Application for Employer Identification Number. When you apply online, you will be able to view and print your assigned EIN at the end of the online session. Via fax, the process is generally complete within four business days. Via mail, you can expect a wait time of approximately four weeks.

 Note that:

• Your principal business must be located in the U.S. or a U.S. territory
• You must have a Social Security Number, Individual Taxpayer Identification Number (given to those who aren't eligible to obtain a Social Security Number), or preexisting EIN.
• You must be considered a “responsible party," which means you're the person who ultimately owns or controls the entity applying or exercises ultimate effective control over the entity.

Now that you can see the advantages and ease of obtaining an EIN, acquiring an EIN should be one of the first steps you take when creating a new business.