You might be getting by with your Social Security number as a sole proprietor, but most small business owners eventually need an employer identification number, or EIN.
The IRS assigns this nine-digit code to track your company for tax purposes. In this detailed guide, we'll answer common EIN questions so you can see if your business needs a number and find out how to get it.
What Is an EIN (Employer Identification Number) and Which Businesses Need It?
An EIN is also called a federal tax identification number (FTIN), a name that describes exactly why you might need this code. It identifies your company with the IRS for federal taxes. You'll use your EIN when you file your business's payroll and income tax returns, unless you file using your Social Security number (sole proprietorship or single-member LLC only).
You should obtain an EIN for your small business if:
- You plan to hire employees within the next year or so.
- You work in a license-regulated agency such as trucking.
- You save for retirement with a tax-deferred Keogh pension plan.
- You have a limited liability company (LLC) with more than one member, corporation or partnership.
Even if none of these items applies, your company can still take advantage of a free EIN.
The Benefits of Having an EIN
When you get an EIN, you'll be able to hire employees and offer them benefits.You can also use this code to open credit cards, loans, and bank accounts for your business. Having an EIN shields you from sharing your private Social Security number with suppliers and vendors, which can lead to identity theft.
Your EIN also allows you to separate business and personal finances. That's an important step to take if you have personal assets like a home or vehicle. Without an EIN, if someone successfully sues your business and you haven't established separate personal accounts, the court could take these assets to satisfy the legal judgment.
How to Apply for an EIN in 3 Steps
It's free and easy to get an EIN from the IRS, especially when you apply online with these three simple steps. If you prefer, however, you can also apply by fax or postal mail.
1. Know Who Can Apply
To qualify for an EIN, your business needs a main location in the United States or its territories, even if you conduct some operations and sales outside the U.S. You or the person applying for the EIN on behalf of your business also needs to meet certain qualifications, including:
- A valid Social Security number or taxpayer identification number
- Status as a responsible party for the business with access to its finances, such as an officer, partner, owner, assistant or secretary
2. Prepare the Required Documents
You'll need to complete Form SS-4: Application for Employer Identification Number. Before you fill it out, gather the following details:
- Name and contact information for all business owners
- Social Security number of the person completing the form (the responsible party described above)
- Type of business entity
- Country or state of incorporation if applicable
- Reason for applying for an EIN
- Date you purchased or started the company
- The number of employees you currently have or the maximum you expect to have in the next year
- Primary industry and description of core product and/or service lines
- Closing month for your fiscal year, usually December if you follow the calendar year
- The date when you first paid employees or plan to pay your first employees
- Whether you want to file an annual or quarterly employer return (applicable only if your annual payroll costs total less than $4,000)
When you apply for an EIN on the IRS website, an online assistant will walk you through the necessary steps to submit the required information. You can log into the application portal from 7 a.m. to 10 p.m. Eastern time Monday through Friday.
3. Submit the Online Form
If you fill out your SS-4 on the IRS website, you just need to hit submit after you double-check all the information. You'll get your EIN right away.
If you mail your Form SS-4, it will take about four weeks to receive your EIN. Send it to Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999.
You'll usually get a response to a faxed EIN application in about four business days. The fax number is (855) 641-6935.
Will I Ever Need to Change My EIN?
You'll need to change your EIN if you change your business structure. For example, the IRS requires a new number if you have a partnership and decide to create a limited liability company (LLC). In addition, you'll need a new EIN in these situations:
- You declare bankruptcy as a sole proprietor.
- New owners join the business.
- Your company receives a new corporate charter.
- You split off from a parent company or join a larger company as a subsidiary.
- You merge with another company.
You generally don't need a new EIN if you're just changing the name of your business, but none of the above circumstances apply.
What Happens If I Lose My EIN?
You can try these ideas if you can't find the notice from the IRS with your EIN:
- Call 800-829-4933 to reach the IRS Business & Specialty Tax Lien. You can talk to an operator who can look up your EIN from 7 a.m. to 7 p.m. in your local time zone, Monday through Friday. You must be an authorized individual to use this service.
- Look for your business tax return. Your EIN will be on this document as long as you got the number before you filed your most recent return.
- Reach out to the local or state agency where you applied for your business license.
- Contact the bank where you opened an account for your business.
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The Bottom Line
An EIN serves a number of important functions for your business. You'll use this unique ID to pay taxes, separate your personal finances, apply for funding, and otherwise operate the company's financial affairs.
Even if you don't strictly need an EIN, you can take advantage of the benefits that come from this IRS identifier. It's free and easy to apply; in fact, you can get an EIN instantly online once you complete Form SS-4.
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