Operating a successful business involves navigating complex legal and tax requirements. One key task for many company owners is obtaining an Employer Identification Number, commonly known as an EIN. This unique nine-digit number helps identify your business entity and is used for important tax filing and reporting purposes.
In this comprehensive guide, we’ll explain what an EIN is, outline scenarios where you need to get one, detail the various application options, and provide additional resources for business owners and tax professionals.
An Employer Identification Number (EIN) is a nine-digit number assigned by the Internal Revenue Service (IRS) to business entities operating in the United States. It is used to identify the tax accounts of employers and certain non-employers such as sole proprietors, corporations, partnerships, estates, trusts, certain individuals, and other business entities.
EINs are also known as Federal Tax Identification Numbers and are used for the purpose of tax administration. They allow a business to identify itself to the IRS and other government agencies. The IRS uses EINs to track various tax obligations including employment tax reporting, income reporting, excise tax filings, and more.
In short – an EIN functions like a social security number for your business. Nearly all businesses need one.
There are many scenarios where a business needs to obtain an EIN. Although it is commonly associated with having employees, many non-employer entities need EINs as well.
You will likely need an EIN if your business:
Essentially, self-employed individuals operating a sole proprietorship need an EIN once they begin hiring employees or creating a qualified retirement plan. Most other business structures like corporations, partnerships, and LLCs need EINs from the outset of operations. Non-profit entities and estates may also require one when applying for tax-exempt status.
If you’ve determined your business needs an EIN, the next step is applying with the IRS. Thankfully obtaining an EIN is free - beware any websites that charge a fee for this service.
There are a few different options available:
The fastest and most efficient way is to apply online via the official IRS website. This method has several key benefits:
The online EIN Assistant is available 24 hours a day, 7 days a week. Sessions will expire after 15 minutes of inactivity, so make sure to have all required information handy before starting.
For those who prefer paper applications, Form SS-4 PDF can be faxed to the appropriate IRS fax number designated for the state where your business is located. Ensuring the form is fully completed with responsible party information is critical prior to sending.
Approved applications typically receive their official EIN confirmation via fax in 4 business days if a return fax number was provided. Otherwise allow additional time for postal service delivery.
The final option is to mail a completed paper Form SS-4 to the appropriate IRS address for your state. As long as the form includes all required information, the IRS will process the mailed request and mail your EIN confirmation letter typically within 4 weeks.
For applicants located outside the United States or U.S. territories, call 267-941-1099 to receive your EIN over the phone. This number is not toll-free and is available from 6 a.m. to 12 a.m. Eastern time Monday through Friday.
All applications, whether online, faxed or mailed must disclose the name and Taxpayer Identification Number of the true responsible party. This is the person or entity that controls, manages, or directs the applicant business and disposition of its funds and assets.
For most companies, the responsible party will be the owner, sole proprietor, managing partner, or principal officer. Unless your business is a government entity, the responsible party must be an individual person rather than a business entity. Listing information about partnerships, corporations, LLCs or trusts in the responsible party section will cause processing delays.
We’ve explored the critical reasons why the vast majority of business entities need to obtain an Employer Identification Number. Although commonly associated with having employees, many organizations without workers still require an EIN for tax and organizational purposes.
Thankfully obtaining an EIN is a quick and free process through the IRS website or alternative application methods. Be sure to follow the guidelines regarding listing a responsible party and allow sufficient processing time based on your selected approach.
With a solid understanding of what an EIN is and does for your business, the final step is taking action to submit your application. The unique nine-digit number will serve your company’s tax reporting and identification needs for years to come!