Whether you’re the founder of a small business, a chief people officer, or an HR head, understanding the importance of an Employer Identification Number (EIN) is crucial. Think of it as a Social Security Number but for your business.
It’s your business’s unique identifier in the eyes of the Internal Revenue Service (IRS). But why do you need one, and how do you get it? Let’s unpack it.
What Is an Employer Identification Number (EIN)?
An Employer Identification Number is like a personal ID for your business. It’s an exclusive nine-digit number that the IRS assigns to entities doing business in the United States. The format is XX-XXXXXXX, making it distinct and easy to recognize.
You might think getting an EIN is a complex process, but it’s actually quite straightforward. The IRS provides multiple ways to apply — online, by phone, fax, or mail. The best part? It’s free. No hidden costs and no fine print. We’ll go over these options in a moment.
How Do You Know If Your Business Needs an EIN?
Determining whether your organization requires an EIN is crucial in establishing and running operations efficiently as a business owner. Most businesses are required to have this special number.
These include:
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Businesses with Employees: An EIN is mandatory if your business employs staff. It’s required for payroll tax reporting to the IRS.
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Corporations or Partnerships: Any business operating as a corporation or a partnership is required to have an EIN for tax filing purposes.
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Filing Employment, Excise, or ATF Tax Returns: Businesses involved in filing specific types of tax returns, such as employment, excise, or alcohol, tobacco, and firearms, need an EIN.
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Dealing with Withholding Taxes for Non-Resident Aliens: If your business withholds income taxes paid to non-resident aliens, an EIN is necessary for compliance with IRS regulations.
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Having a Keogh Plan: Businesses offering Keogh plans (tax-deferred pension plans) must have an EIN.
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Certain Types of Organizations: Trusts, estates, non-profits, and other specific organization types are required to obtain an EIN.
If you’re unsure whether your existing or new business needs an EIN, it’s best to check with the IRS or your accountant.
Are There Any Businesses That Don’t Need an EIN To Operate?
As mentioned, not all businesses need an EIN to operate. Let’s take a minute to discuss the entities that aren’t required to obtain an EIN:
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Self-Employed Individuals: If you are self-employed with no employees, your Social Security Number (SSN) usually suffices for tax purposes.
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Sole Proprietorships without Employees: Sole proprietorships without any employees typically don’t need an EIN. They can use the owner’s SSN.
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Single-Member LLCs Without Employees: A single-member LLC without employees can also use the owner’s SSN instead of an EIN.
However, it’s important to note that even if your current business structure doesn’t require an EIN, you may need one in the future. For example, if a sole proprietor decides to start up a retirement plan or hire employees, getting an EIN becomes a must.
Do You Need an EIN If You’re Self-Employed?
For self-employed individuals, the requirement for an EIN hinges on whether they have employees or operate their business as a corporation or partnership.
In most cases, self-employed individuals without employees do not need an EIN. Rather, they can use their Social Security Number for any tax purposes. That said, they may choose to get an EIN for the separation of personal and business finances or for other business needs.
Can You Change an EIN Once It’s Been Assigned?
Once the IRS assigns an EIN to your business entity, it becomes a permanent fixture. The IRS does not cancel or reassign EINs, regardless of changes in business operations or whether the EIN was actively used to file federal tax returns. Think of an EIN as a fixed identity for your business in the federal tax system.
While the EIN itself remains constant, certain changes in your business do necessitate updates to the information associated with your EIN. These changes can include:
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Changes in Business Name: If your LLC or business changes its name, this information needs to be updated with the IRS.
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Modification in Ownership: The addition or removal of owners is a significant change that must be reported.
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Change in Address or Location: Any relocation or change in the business address should be communicated to the IRS.
When changes occur, it’s important to inform the IRS promptly. Here’s how to update your information:
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Notification Process: Changes should be communicated in writing to the IRS. This is essential to ensure that your business records are current and accurate.
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Mailing Your Updates: Depending on your business’s principal location, the updates should be mailed to the IRS office designated for your state.
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Confirmation from the IRS: After processing your updates, the IRS will send a confirmation letter. This is your record that the changes have been acknowledged.
Your business’s EIN is a constant identifier unaffected by most business structure or operations changes. However, keeping the IRS informed about significant changes like business name, ownership, and location is essential for compliance and smooth operations.
How To Get an EIN for Your Business
As promised, this section covers the many ways in which you can apply for your EIN. Let’s start with applying for an online EIN and work our way through your other options.
Applying Online
For speed and convenience, the online application is the preferred choice. This application process is available for entities with a principal business, office, or agency in the United States or U.S. Territories.
When applying online via the IRS website, the information you provide is validated in real-time, and an EIN is issued immediately. It’s important to have the name and Taxpayer Identification Number (TIN) of the responsible party ready — this person should have control over the business and its funds.
Applying By Telephone
For international applicants, the IRS offers a phone EIN application service. This service is available Monday through Friday, from 6 a.m. to 11 p.m. EST.
The person calling must be authorized to receive the EIN and answer pertinent questions about the Form SS-4. Once the call is completed and the information verified, the EIN is provided to the caller.
Applying By Mail
The traditional mail-in method is available as well. It’s a slower process, with a typical processing time of around four weeks. You’ll need to send a completed Form SS-4 to the IRS. As with fax applications, including all necessary information is important to facilitate a smooth process. The IRS will mail back your EIN once your application is processed and approved.
Applying By Fax
You can also apply by fax. This involves completing Form SS-4 and faxing it to the IRS. The key here is to ensure that all the required information is filled out to avoid delays. Once the IRS processes your application, and if they determine that your entity needs a new EIN, they will fax the EIN back to you, typically within four business days.
Why Do You Need To Have an EIN?
From compliance to financial organization, an EIN serves as a cornerstone for various essential business functions. Let’s talk about why having an EIN is crucial for your business.
Maintaining Business Compliance
Having an EIN is essential for maintaining compliance in various aspects of your business. This unique identifier is not just a requirement — it’s a key component of your business’s identity in the eyes of the IRS and other government agencies.
An EIN is indispensable for businesses striving to stay compliant with federal, state, and local regulations. That’s where services like Mosey step in, helping to efficiently organize and manage your payroll compliance needs.
Protecting Your Social Security Number
An EIN also plays a role in protecting your personal information. Using your SSN for business transactions can increase the risk of identity theft. An EIN mitigates this risk by providing a separate identifier for your business activities, keeping your personal SSN secure.
Applying for Business Licenses
When it comes to obtaining business licenses, an EIN is often required. It serves as proof of your business’s legal existence and is used by various licensing agencies to track your business’s compliance and tax status.
Hiring and Paying Employees
Hiring and managing payroll compliance are significant aspects of running a business. This is where Mosey can be key — by integrating with your EIN, Mosey helps ensure that your business adheres to payroll compliance regulations, making the process smoother and more efficient.
Opening a Business Bank Account
An EIN is typically required to open a business bank account. This separation of personal and business finances is a best practice and also simplifies financial management and tax reporting.
Filing Business Taxes
For tax filing purposes, an EIN is crucial. It helps the IRS identify your business and process your tax returns accurately. Plus, with tools like Mosey, managing the complexities of business tax compliance becomes more manageable, ensuring that your filings are accurate and timely.
Getting Your EIN and Staying Compliant
Securing an EIN is foundational in establishing your business and ensuring ongoing compliance. An EIN streamlines numerous essential business processes, from hiring employees to managing payroll and taxes.
Embrace the journey of business growth with the right tools and knowledge, and let Mosey be your guide in managing the complexities of business compliance once your business is set up. Schedule a demo today to get started.
