An Employer Identification Number (EIN) is a nine-digit number that is assigned to businesses. This identifier is used to track the company’s tax reporting and filings.
1. Introduction to EIN
An Employer Identification Number (EIN) is a nine-digit number that is assigned to businesses. This identifier is used to track the company’s tax reporting and filings. An EIN is used for more than just taxes; it gives business owners a unique identification. EINs are necessary for state and federal filings, the opening of business bank accounts or lines of credit, and it makes it easier to track a labor market rate for workers’ compensation purposes. The main use of the EIN is for tax reporting and identification.
All businesses with employees need an EIN. This is especially true if a person owns more than one company, as each EIN is specific to one company. For sole proprietors, if the business is primarily operated by the individual and it doesn’t have any employees, the Social Security Number can be used as the tax number. EINs are required for corporations and partnerships and are usually required for LLCs if the company has employees or has more than one member. Nonprofit organizations, employment benefit plans, estates, and trusts may also need EINs. An EIN does not expire and is valid as long as you are using it. To prevent fraudulent use and identity theft, it is advised that only one EIN is used for the business. If an individual is assigned an EIN, it should not be stated that it is an EIN.
2. Purpose and Importance of EIN
The Employer Identification Number (EIN), also known as the Federal Tax Identification Number, falls within the federal tax obligations that are central to any business. An EIN is a unique number assigned for identification purposes. The EIN is used to track and identify businesses, ensuring compliance with tax liabilities. Thus, one of the most important outcomes of an EIN is to identify a business entity for its tax-related activities. It is required by private and public organizations, banks, and financial institutions to facilitate various applications, provide security for a business, help in paying and filing taxes, and meet the statutory obligations. While an EIN is a requirement for many corporations, it is also likely to ease the process of establishing the legitimacy of other business organizational structures during the application phase with government agencies and private organizations.
Once a business owner applies for and receives an EIN, they have access to a multitude of facilities. For starters, business owners are required to obtain an EIN to facilitate personalized financial records. The EIN separates business finances from personal finances and vice versa. Business owners typically cannot open a business banking account without an EIN. To do so would result in unnecessary complications and a slew of penalties. An EIN also provides credibility when dealing with various organizations. Not only does having an EIN establish a business with credibility, but it shows that the owner is established, as no business can succeed without one. It also informs employees by providing the employer’s tax information for all W-2s and tax returns. Therefore, many organizations require a document that contains your EIN to issue forms. Having an EIN is important when conducting business contracts with commercial enterprises or government agencies. Many contracts require an EIN for tax identification purposes, which allows the business to transform from a sole proprietorship to a corporation. Furthermore, if a business owner is hiring employees or opening a retirement or certain deferred benefit plan, an EIN is required. To file taxes, a business owner must obtain an EIN to remain compliant and to ensure their employees are receiving the correct tax withholdings.
3. Applying for an EIN
Businesses can apply for an EIN using a few different methods, which may be more convenient depending on the business owner’s needs. The first method is to apply for an Employer Identification Number online and complete the application process electronically. Additionally, businesses can send the application by mail, or they can fax it. When applying for an EIN, applicants are required to provide information about their business, such as its structure and ownership. This includes details about the business’s activities, such as selling goods and services, as well as the ownership of any LLCs or partnerships. The application process is free of charge and does not have any associated fees.
To apply for an EIN, businesses will need to provide their own personal information as well. This includes their name and date of birth, as well as their social security number. The process of applying for an EIN is similar regardless of the method chosen to complete the application process, but generally, the fastest way to get an EIN is to apply online. Business owners who apply online can complete the process within a matter of minutes, provided that they are able to provide accurate information. Once they do, they will receive the EIN immediately upon the completion of the application. Applications that are faxed can take up to four business days to process, while applications sent by mail can take up to four weeks to be processed.
4. Hiring Professional Help for EIN Matters
Some entrepreneurs may be overwhelmed by the complexities of applying to the IRS for an EIN, dealing with changing regulations, and associated paperwork, which is where hiring a tax professional or legal advisor may come in. Small business owners might consider enlisting the expert help of an accountant or tax professional to effectively apply for, obtain, or update an EIN. An accountant is a qualified financial service provider with diverse experience to help individuals and businesses of all sizes and develops a deep understanding of their clients, offering support and assistance in many financial areas. Accountants are also able to help with payroll, bookkeeping, and tax filing consulting services, as well as during an IRS audit. Certified tax professionals help navigate tax laws when preparing filings and to obtain the best result possible, continually analyzing how changing laws will affect clients. Established attorneys may also specialize in guiding small businesses through many tangled regulatory complexities.
Some entrepreneurs would rather navigate the complex EIN process alone, leading to important decisions based on the potential budget of the founder. Hiring a professional may include not only fees, representation costs, and other out-of-pocket expenses but also the intangible cost of overspending when updating EIN information, which can be expensive. Startups often make avoidable provisional purchasing decisions to meet fundraising and budget constraints, only to regret it later. Hiring professional help is the best approach if your company’s goal is to apply for and update an EIN correctly. Potential EIN applicants should consider their detailed company goals, draft related application questions, and hire a provider who can meet those requirements and understand the costs involved relative to the value received. With professional help, businesses can more easily avoid common sources of frustration and stress that result from the imposition of EIN federal tax collection regulations.
5. Common FAQs and Troubleshooting
- FAQs and Troubleshooting
When applying for an EIN, you may have an issue or question that is not addressed in the information above. Below are some common questions—and their answers—to help troubleshoot issues you may be having. If you have a question that is not addressed below, consider working with a tax professional.
Most often, businesses simply need their EIN to prepare taxes, open bank accounts, or complete state and local registrations. If you have your EIN and simply misplaced the confirmation, you should be able to find it easily enough. If you have not already, be sure to write the EIN somewhere safe so that you can refer to it later. Similarly, if you are simply looking to close your EIN account, you will simply need to check “Closed our business” as the reason for closing and mail the information to the correct address. If you have an EIN but have made changes to your company structure, you’ll need to contact the IRS for information on how to proceed. Changes in structure often necessitate changes in identification number.
