Employer Identification Number (EIN): A Comprehensive Guide for Businesses

In this article:

• What is an Employer Identification Number? (EIN)?
• Who needs an EIN?
• How to get an EIN?
• Frequently Asked Questions about Employer Identification Numbers

Obtaining an Employer Identification Number (EIN) is a crucial step when establishing a company, as it is the official mark of your company’s legal and financial standing. Issued by the Internal Revenue Service (IRS), an EIN is a unique nine-digit identifier required for tax purposes and serves as a Federal Tax ID Number. But many new entrepreneurs, including and especially the self-employed, are intimidated by the thought of getting an EIN, often because they aren’t really sure what it is or why it’s important.

In this comprehensive guide, we will explore the significance of an EIN, discuss who needs it, and provide step-by-step instructions on how to obtain get one to take control of your financial management.

Understanding Employer Identification Numbers (EIN)

The primary purpose of an EIN is to ensure accurate identification and tracking of a business’s tax obligations. It enables the IRS to monitor and assess taxes, including income tax, employment tax, and excise tax. Additionally, an EIN facilitates compliance with federal and state tax laws, helps prevent identity theft, and establishes a solid strong legal foundation for businesses.

Importance of an EIN for Tax-Related Matters and Legal Compliance

Tax Filing and Reporting: An EIN is a prerequisite for filing business tax returns. It allows businesses to report their income, claim deductions, and fulfill their tax obligations accurately. Without an EIN, businesses may face challenges in complying with tax laws and risk penalties or legal consequences.

Employee Payroll and Withholding Taxes: If your business has employees, an EIN is necessary for payroll purposes. It ensures proper withholding of federal and state income taxes, Social Security taxes, and Medicare taxes from employee wages. Additionally, an EIN enables businesses to contribute and report employment taxes to the IRS.

Business Entity Identification: An EIN distinguishes your business as a separate legal entity. It helps maintain clear boundaries between personal and business finances, protecting personal assets from business liabilities. This separation is crucial for corporations, partnerships, limited liability companies (LLCs), and other business entities.

Opening Business Bank Accounts: Banks and financial institutions typically require an EIN when opening business bank accounts (although some business types may be able to open an account using the owner’s Social Security number). It serves as a unique identifier for the business, streamlining financial transactions and ensuring smooth banking operations.

The Distinction between EIN and Social Security Number (SSN)

Entrepreneurs who typically operate as sole proprietors may be used to using their SSN instead of an EIN number. But while sole proprietors with no employees can do this, all other forms of business need an EIN.

Here’s a look at the difference between an EIN and an SSN:

EIN: An EIN is specifically assigned to businesses and other entities for tax-related purposes. It is used to identify the entity in various financial and legal transactions. Each business entity should have its own unique EIN, even if it has multiple locations or operates under different business names.

SSN: A Social Security Number, or a federal tax identification number, is a nine-digit number issued to U.S. citizens for Social Security and personal identification purposes. It is primarily associated with personal tax obligations, benefits, and records. Neither an individual taxpayer identification number nor an SSN should be used as a substitute for an EIN in business-related activities.

Who Needs an EIN?

• Sole proprietorships with at least one employee
• Partnerships
• Limited liability companies (LLCs)
• Corporations
• Non-profit organizations
• Trusts and estates

How to Obtain an EIN

Getting an EIN is very easy to obtain, and can be filed for and received in about five minutes using the IRS’ online application system.

Applying for an EIN Online

The step-by-step process on the IRS website should be pretty straightforward for most people, but one thing to note: If you make an error such as spelling your legal name wrong and need to make changes, you’ll have to start from the beginning. This isn’t a big deal, since the application process is so fast, but it can be a nuisance if you do happen to type in your address wrong or put in the wrong date.

If you select the email/PDF option to receive your new EIN number, you’ll receive it instantly upon submitting the form. If you prefer to receive the EIN number for your small business by mail, expect to wait a week or more.

EIN Mail-in application

If you opt to apply for your EIN by mail, you can expect to wait at least four weeks for your application to be processed. To apply, fill out Form SS-4, and if you have a place of business in the United States, mail it to:

Internal Revenue Service

Attn:  EIN Operation

Cincinnati, OH 45999

If you do not have a place of business in the U.S., mail it to:

Internal Revenue Service
Attn:  EIN International Operation
Cincinnati, OH  45999

EIN Application by Fax

You can significantly speed up your physical application if you fax your Form SS-4 instead of mailing it. A fax application should receive a response to that same fax number in four business days. For applicants that have a place of business in the U.S., fax Form SS-4 to: 855-641-6935. Applicants without a domestic place of business should fax their paperwork to: 855-215-1627 (within the U.S.), or 304-707-9471 (outside the U.S.).

Receive Your EIN Number by Phone

To note, international applicants can receive their EIN number by phone by calling: 267-941-1099 (not a toll-free number) 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday. The person calling must be an authorized representative of the company, as they will be receiving the EIN, and must also be able to answer the necessary questions found on Form SS-4, Application for Employer Identification Number. You will need to complete the Third Party Designee section on Form SS-4 in order for an authorized individual to receive your EIN on this call.

Key Considerations and Best Practices

When it comes to obtaining and maintaining an Employer Identification Number (EIN), there are several key considerations and best practices that businesses should keep in mind. These practices ensure accuracy, compliance, and the safeguarding of sensitive information. Let’s explore them in detail.

Accuracy and attention to detail during the application process

Accuracy is paramount when applying for an EIN. It’s crucial to provide precise and up-to-date information to avoid any delays or complications. Mistakes or inaccuracies in the application can result in processing errors, potential penalties, or difficulties in the future.

To ensure accuracy during the application process, follow these best practices:

• Double-check your application: Before submitting the EIN application, carefully review all the information you have provided. Verify that names, addresses, and other details are accurate and consistent with your business records.
• Consult with professionals: If you’re uncertain about any aspect of the application, seek guidance from tax professionals or legal advisors. Their expertise can help you navigate the process and ensure the accuracy of your application for responsible parties.
• Keep documentation in order: Gather all the necessary documentation and supporting materials required for the EIN application. This may include business formation documents, identification documents, and other relevant paperwork. Having these documents prepared in advance will streamline the application process and minimize the chances of errors or omissions.

Updating EIN information in case of business structure or ownership changes

Businesses evolve and undergo changes over time. It’s essential to keep the IRS informed about any modifications to your business structure or ownership that may impact your EIN.

Here are some best practices for updating EIN information:

• Stay proactive: Whenever there are changes to your business structure, such as forming a new entity, changing ownership, or converting from one type of business entity to another, promptly notify the IRS. This ensures that your EIN records remain accurate and up to date.
• File the necessary forms: Depending on the nature of the changes, you may need to file specific forms with the IRS to update your EIN information. Consult IRS guidelines (which can be found on their official website IRS.gov) or seek professional advice to determine the appropriate forms required for your particular situation.
• Maintain organized records: Keep records of any changes made to your business structure or ownership. Retain copies of relevant documents, such as formation agreements, articles of incorporation, or partnership agreements. These records serve as important documentation and can help facilitate the updating of your EIN information when needed.

Secure handling and protection of the EIN to prevent fraud and identity theft:

The Employer Identification Number (EIN) is a unique identifier for your business, and it’s essential to protect it from potential fraud or identity theft. Safeguarding your EIN ensures the integrity of your business and minimizes the risk of unauthorized use or misuse.

Follow these best practices for secure handling and protection of your EIN:

• Limit access: Only share your EIN with trusted individuals or entities that require it for legitimate business purposes. Avoid sharing it indiscriminately or publicly, as this increases the risk of unauthorized access.
• Store securely: Keep physical and digital copies of your EIN in a secure location. If storing digitally, use encrypted storage or password-protected files to prevent unauthorized access. Consider using secure cloud storage or dedicated digital document management systems.
• Monitor for suspicious activity: Regularly review your business financial statements, tax records, and other relevant documents for any signs of suspicious activity or discrepancies. Report any unauthorized use of your EIN to the appropriate authorities immediately.

Common Questions and FAQs

Can I get an EIN without a Social Security Number?

Yes, it is possible to obtain an EIN without a Social Security Number (SSN). Non-resident aliens, foreign individuals, and certain business entities may not have an SSN but still need an EIN for tax purposes. To apply for an EIN without an SSN, you can complete Form SS-4 and follow the instructions provided by the Internal Revenue Service (IRS). It is essential to consult the IRS guidelines or seek professional advice to ensure compliance with the specific requirements for obtaining an EIN without an SSN.

Where can I access my EIN if I lose it?

Of course, you can always reach out to the IRS, but in a crunch, you can find your EIN in the following places:

W-2 Forms: If you are an employee, your employer will provide you with a W-2 form at the end of each tax year. The employer’s EIN is typically included on this form.

Tax Returns: If you or your business files tax returns, the EIN is usually required to identify the business entity. It is included on the relevant tax forms, such as Form 1040 for individuals or Form 1120 for corporations.

Should I share my EIN information with employees, partners, and financial institutions?

As a business owner, you may need to share your Employer Identification Number (EIN) with various entities for different purposes. Here are some instances where sharing the EIN may be necessary:

Employees: When hiring employees, you will need to provide the EIN to ensure proper tax reporting and compliance with employment regulations. This information is typically shared during the onboarding process or when completing tax-related forms such as Form W-4.

Partnerships and Corporations: If your business operates as a partnership or corporation, it is important to share the EIN with partners, shareholders, and other relevant stakeholders. This allows for accurate reporting and compliance with tax obligations.

Financial Institutions: Banks, lenders, and financial institutions may require your EIN for various purposes, such as opening business accounts, obtaining loans, or processing financial transactions. Providing your EIN to these institutions helps establish your business’s identity and facilitates financial operations.

When sharing your EIN, it is essential to exercise caution and ensure that you only share it with trusted individuals and entities. Protecting the confidentiality of your EIN helps prevent potential fraud or misuse.

Conclusion

To summarize what we’ve covered, if you’re running a small business, you’re going to need an EIN. Thankfully, if you need an EIN you can get one in a few minutes by filling out a simple online EIN application. If you’re here and you’re thinking about getting business financing from Biz2Credit, you’re going to need to have an EIN. And that’s a good thing—it means your business is growing and you’re ready to take the next step!