Understanding an EIN’s relevance is crucial for navigating the most crucial steps of starting a business. The concept is highly thrilling; however, it does come with a bucket load of responsibility. Add eye-catching possibilities and a sprinkle of arm’s length excitement, and it’s a walk in the park.
To put things in context, the IRS offers an Employer Identification Number, or an EIN, as folks like to call it. As alluring as the phrase sounds, an EIN serves more than one purpose. It helps make an entity’s life much easier by functioning as a unique identifier. From taxes in general to social security benefits, an entity gets to relish the fine print of policies.
It’s easier said than done. There’s always the risk of making a misstep, which consequently costs your business time and money. This is the guide one looks for to obtain their business’s EIN.”
What Is an EIN?
To break things down into simpler terms, an Employer Identification Number, or EIN for short, is like having a modern-day passport. Businesses all over the world are required with an EIN, serving as a nine-digit ID number, aiding tax needs.
In the US, this critical task is taken care of by none other than the IRS, so your worries go straight into the bin. Treat it like a Backbone Identification Number, this enables your business to come via for a list of federal services such as employment and income tax.
In most cases, you are correct in thinking that the name implies it is designated for companies with a workforce. Not quite. An EIN is often needed even before one thinks of hiring any employees. This is because several banking and licensing institutions, along with tax offices, ask for an EIN to authenticate your business.
Your company will be assigned a unique number known as an EIN, or Taxpayer Identification Number. It will not change for the entire existence of your business, even if your name or address changes, unless your business entity structure changes tremendously.
Who Needs an EIN?
It is not common for a business to obtain an EIN on a legal basis, but many end up needing one at some point. The business types that need to request an EIN include:
LLCs and Corporations: All or most limited liability companies (LLCs) and corporations are required to obtain an EIN even if there are no employees.
Partnerships: Any business partnership needs one for dealing with taxes.
Businesses with Employees: If there is a plan to add employees to the company any time now or in the future, obtaining an EIN to deal with employment-related taxes is mandatory.
Sole Proprietors Who File Certain Taxes: If sole proprietors anticipate hiring an employee, establishing a retirement account, or if they wish to operate under a trade name, then an EIN may be needed.
Trusts and Estates: In order to manage the assets and file the taxes, these entities need an EIN.
Nonprofits and Religious Organizations: For compliance and reporting needs, these organizations also have to get an EIN.
Even if it is not a necessity for you, most banks will request an EIN if you would like to open a business checking account. You may also require one to apply for some business licenses, permits, or even credit.
Advantages of Having an EIN
Having an Employer Identification Number (EIN) is not a requirement, but the ease of filing taxes and conducting business activities are reasons why many business owners opt to register for one. Here’s why several entrepreneurs decide to secure an EIN at the initial stages of starting a business:
1. Open a Business Bank Account
In most cases, opening a business bank account requires an EIN, which segregates the personal finances and the business finances. This practice of separating accounts simplifies the process of filing taxes, tracking finances during the year, and protects the business owner’s personal finances in the case of legal problems.
2. Legally Hire Employees
To pay an employee or contractor’s wages, taxes, and file payroll forms with the IRS, you need an EIN. Hiring employees or contractors without one makes you non-compliant or illegal.
3. Build Business Credit
With an EIN, you can establish a credit profile for your business. This is critical when applying for financing, business credit cards, trade accounts, or even leasing office space.
4. Ease Tax Filing
Even sole proprietors benefit from having an EIN, especially when submitting returns requiring identification other than the SSN. It helps keep taxes private and prevents identity theft.
5. Increase Business Credibility
Having an EIN makes your business credible and professional. It indicates to vendors, investors, and customers that your business has been established and is serious about its operations.
How to Apply for EIN: Step-by-Step
Applying for an EIN is quite simple, but make sure to have all the necessary information handy and review the process for your specific circumstances. With that in mind, let us get right to it. Here is the correct way to complete the form.
Step 1: Eligibility Check
Make sure to double-check the IRS requirements before you fill out the application form. The primary requirements include:
- A valid Taxpayer Identification Number must be held (this includes a Social Security Number or an Individual Taxpayer Identification Number)
- Situated in the U.S or U.S. territory
- An individual, commonly referred to as the “responsible party,” who runs the business.
If you do not reside in the United States but want to start a business in the country, an EIN can still be requested. However, phone or mail applications will need to be made, and SSN or ITIN waivers can be used if other criteria are met.
Step 2: Choose the Method of Application
The IRS provides several approaches for applying for an EIN:
A. Online application (Ideal for quick and efficient completion)
- Recommended for those whose responsible party holds an SSN or ITIN.
- Will require the application it to be done in a single sitting.
- The form will be issued in PDF form immediately post-completion.
- Available only during IRS business hours, which usually run Monday through Friday, 7:00 AM to 10:00 PM Eastern Time.
B. Apply by Fax
- Fill out Form SS-4 and fax it to the appropriate IRS number.
- It is necessary to provide a fax number for a reply to be sent.
- Standard response time is around four business days.
C. Apply by Mail
- Complete Form SS-4 and send it to the IRS.
- Response time to the applicant is approximately 4 to 6 weeks.
- This method takes the longest, but it is best suited for those who do not have internet access or need to send additional documents.
D. Apply by Phone (for International Applicants)
- If you are outside the U.S and do not possess an SSN or ITIN, you can dial the following number: +1-267-941-1099. Note that this is not a toll-free number.
- An IRS customer service representative will assist you in completing the application during the phone call.
- Your EIN will be issued on the spot once the information has been verified.
Step 3: Complete Form SS-4
The EIN application revolves around the completion of IRS Form SS-4. It requires detailed information about your business, including:
Legal Name and Trade Name (DBA)
The name as it appears on legal documents, birth certificates, driver’s license, passports, and any other official/legal documents, and any alternate business names.
Mailing Address and Physical Location
The primary location where you do business or your mailing address.
Responsible Party:
The individual who holds the business with all its responsibilities, together with their Social Security Number or Individual Taxpayer Identification Number (SSN, ITIN).
Entity Type:
Select whether you’re applying as an LLC, Corporation, Partnership, Non-Profit Organization, Sole Proprietorship, or any other type.
Reason for Applying:
Usually, “Started a New Business,” but hiring employees or changing organization type is also possible.
Date Business Started or Acquired:
The date on which the business started operating legally.
Expected Employment and Payroll Information:
Estimate of the number of employees to be hired and the timeframe.
Filling out this form accurately is essential as errors may cause delays or necessitate reapplication.
Step 4: Submit Your Application
You can now submit the SS-4 form using the method you chose online, fax, phone, or mail:
- Online: You will receive confirmation and will be assigned an EIN right away.
- Fax: You should expect confirmation in about four business days.
- Mail: Responses take 4-6 weeks.
- Phone (outside the US): You will be issued the EIN immediately during the call.
Once the submission is complete, the IRS will send a confirmation known as CP 575. You must keep this document safe, as it is required by banking institutions, vendors, and sometimes even governmental agencies.
Step 5: Use and Maintain Your EIN
EIN can now be to the business’s advantage by using it to:
- Open a bank account in the business name
- File tax returns
- Obtain licenses and permits needed for the business operations
- Manage and recruit staff
- Establish credit for the business
Your EIN will be valid for life and does not require renewals. But if there are any major structural changes, like going from a sole proprietor to a corporation, then a new EIN might need to be applied for.
Common Mistakes To Avoid
Mistakes that can be avoided:
- Picking the incorrect LLC formation address (like ‘company’ for an LLC and corporation).
- Not using the right reason for applying (very crucial for IRS documentation).
- Leaving relevant information blank or not providing it causes a lot of delays.
- Applying for too many EINs to one business (There is bound to be confusion).
- Not taking care of the EIN confirmation letter(the letter is essential).
Make sure every detail is accurate before submission of the application to avoid deferrals.
Need Help? Let Easyfiling deal with it
For business owners new to the concept, simple does not apply. If you happen to be an international founder, nervous about declaration forms, or just trying to shy away from tedious errors, professionals can really help you save a lot of time.
We do everything, ranging from applying for the EIN, filing forms, to communicating with the IRS, so that clients can rest easy knowing that the whole process has been simplified.
Final Thoughts
In the contemporary world, getting business as a legal citizen is not a simple task. The process of obtaining an EIN is one of the initial steps that is crucial for making sure operations are running smoothly. It factors into pretty much everything, like launching a new business and IT services.
It is a relief to know that the process is relatively simple and in many instances, totally costs nothing if processed through the IRS. Regardless of whether you apply online, via post, or through a third-party service, it is advisable to obtain your EIN early, as it paves the way towards success.
Swostika Silwal
