To legally hire employees, open a business bank account, and
protect yourself from liability and identity theft, you'll need to obtain an
Employer Identification Number before starting a new business. Discover the
significance of an EIN and how to obtain one.
What Is an EIN Number?
An Employer Identification Number (EIN), also known as a
Federal Tax Identification Number (FEIN), is a nine-digit number assigned to a
new business by the Internal Revenue Service (IRS) for tax purposes. It
functions as a Tax Identification Number (TIN), similar to but distinct from
your Social Security number (SSN) or Individual Taxpayer Identification Number.
When filing taxes, include your Federal Employer Identification Number on your
business tax return.
Why Are EIN Numbers Important?
Whether you own a large corporation or a small business, if
you have employees, operate as a partnership, or withhold taxes from income,
your company will require a federal tax ID number. An EIN enables you to:
Apply for business licenses: A business license is
required before you can legally operate as a business owner. An EIN enables
business owners to apply for necessary state and federal licenses.
Submit a business tax return: An EIN allows you to file a
separate tax return from your personal taxes, depending on the nature of your
business. Even if your company qualifies for tax-exempt status as a nonprofit
organization, you'll need an EIN for your tax forms.
Open a business bank account or apply for credit: An EIN is
required to open a business bank account or apply for a business credit card.
Protect yourself from liability: Separating your
business finances from your personal finances reduces your liability as the
responsible party. With an EIN, any financial issues you encounter affect only
your business, and you can protect your personal assets from lawsuits.
Reduces the possibility of identity theft: EINs, unlike
Social Security numbers, do not require protection from potential identity
thieves, keeping your personal information safe.
Who Requires an EIN Number?
Under certain conditions, the following business structures
require an EIN Number:
Multi-member limited liability companies or partnerships: If
your business is a multimember LLC or a partnership, you must have an EIN in
order to file a partnership tax return.
Organizations for charitable purposes: Even if your
nonprofit organization is tax-exempt, you must have an EIN in order to file the
necessary tax forms.
S-corporation: If you own an S-Corporation, you must report
your income to the IRS through the company's shareholders and must obtain an
EIN for these activities.
Self-employed people: Certain self-employed individuals who
identify as subcontractors may require an EIN in order for their employers to
properly process their business income.
Single-member LLC: A single-member LLC means you've created
a legally distinct line between yourself and your company, even if you don't
have any employees. If you even have one employee, you must obtain an EIN. You
do not need an Employer Identification Number if you do not have employees or
excise tax liability; however, you may need one to open a business bank account
or obtain business credit.
Sole proprietorships with one or more employees must obtain
an EIN. You do not need an EIN if you do not have employees (or file excise or
pension plan tax returns). Although you can file your taxes as an individual
using your Social Security number, you may need an EIN to open a business bank
account or obtain business credit.
Trusts and estates: For tax purposes, some trusts and
estates require EINs.
How to Get an EIN Number
To obtain a new EIN, visit the IRS website (irs.gov) and
download and submit Form SS-4: Application for Employer Identification Number
for free, or apply by fax or mail; the IRS will assign you a number
immediately. The EIN application requests information about you and your
business, such as your legal name, business name, company type, reason for
applying, and a valid taxpayer identification number.