When you have a business, the government created a way to keep track of the credit and everything that goes on in the business.
Let’s say you create an LLC for your real estate investing business. The company may hire employees, pay taxes, have credit for borrowing money, and many other needs.
Enter, the Internal Revenue Service (IRS) of the federal government. They created a way to track your business for all the above reasons. It is not all bad. In fact, the EIN number will help you in your business.
Quick side note: It is funny how we say, “What is an EIN Number?” when the “N” in EIN stands for “number.” That would be like saying, “What is an Employment Identification Number Number?”
Now, let’s look into what an EIN number is, how to get one, and what it can do for your business.
What is an EIN number for the IRS?
EIN stands for Employee Identification Number. It is a unique 9-digit number that acts as a business’ identification number in the United States. It assists the IRS in identifying individual businesses and monitoring their taxes. It is also sometimes referred to as a Federal Tax Identification.
Only one unique EIN is issued per business. If you change the name of your business, your business becomes a subsidiary of another corporation, or your business changes to a sole proprietorship or partnership, you will have to apply for a new EIN.
What is an EIN number used for?
As a business owner, you would use your EIN when filing your tax returns.
You would also make use of it for non-tax purposes. For example, opening a bank account, applying for a business license, and hiring employees.
You will also need it to provide your customers with a tax invoice and to create a payroll.
Who needs an EIN number from the IRS?
As the name suggests, anybody who employs other people requires an EIN number. You also need an EIN number if you operate your business as a corporation or partnership, even if you do not employ staff.
You need an EIN if you file any of the following tax returns:
Likewise, if you are involved in any of the following organizations, an EIN is required:
- Farmer’s cooperatives
- Plan administrators
- Real estate mortgage investment conduits
- Trusts (except certain grantor-owned revocable trusts)
- Exempt Organization Business Income Tax Returns
You also need an EIN if any of the following are true:
- You have a Keogh plan (a tax-deferred pension plan).
- You withhold taxes on income paid to a non-resident alien (someone who is neither a citizen nor a permanent resident of the USA). This income refers to income other than wages (e.g., royalties).
- You have any employee benefit plans (e.g., health or retirement).
Non-profit organizations have to apply for an EIN before they can apply for tax exemption.
If you employ a domestic worker to help you in your home or garden, you will need to apply for an EIN so that you can report the withholding of payroll tax.
Even deceased estates may need an EIN. The executor of the estate would have to apply for an EIN if the estate includes assets that needed to be probated prior to distribution.
Should you get an EIN number when you start an LLC or corporation?
An LLC is a limited liability company. If you register your business as an LLC and are the only member or owner, and if you do not have any employees, then you don’t need to apply for an EIN number. You can declare your earnings under your personal income.
However, the moment you employ someone or take on a partner, you will need to apply for an EIN.
If your single-owner LLC with no employees were to file for bankruptcy, you would also have to apply for an EIN.
As a sole contractor, although you don’t have to apply for an EIN, having one can provide some protection. You could provide this number to prospective clients instead of your social security number. Many contractors find that this enhances their professional image.
All businesses that are registered as corporations have to have an EIN, even if you have no employees and are the only owner or member.
Where do you get an EIN number?
The only organization that can issue an EIN is the Internal Revenue Service. There are various ways you can apply, which are covered in detail below.
How to apply for an EIN number
If your business is located in the US or US territories, you can apply online. Go to https://sa.www4.irs.gov/modiein/individual/.
Before doing so, however, make sure that you are well prepared. You cannot save your session and return to it later—it has to be completed in one go.
The session will expire if you are inactive for minutes, which can be frustrating because you then need to restart the whole process. This is a security precaution.
A tip to avoid coming up with all of the answers under time pressure is to download the SS-4 form from the IRS website https://www.irs.gov/pub/irs-pdf/fss4.pdf and go through it and prepare your answers ahead of time.
Please note that in order to apply online, it is important that you have a US Individual Tax Identification number, and you must be resident in the US or its territories.
Make sure that you have the following information close at hand:
- The legal name of your business (and the trading name if that differs from the name) and where the organization’s articles of formation are filed.
- The name and social security number or Tax Identification Number of the responsible person applying for the EIN. The responsible person can be a sole proprietor, partner, executor, or trustee. You will also need his/her telephone number and signature. An electronic signature is acceptable.
- The physical and postal address of the business or organization. The form field for the physical address will only allow for 35 characters, so if your address is longer than this, work out how you can input it without leaving out the most important details (e.g., your apartment or suite number).
- The type of entity (LLC, corporation, partnership, etc.)
- If you are an LLC, you will need to provide the number of members.
- If you are a corporation, you will need to stipulate the state or country where your corporation is registered.
- The reasons that you are applying for an EIN. This could be to start a new business, hire employees, open a business bank account, start a new employee benefit plan, or buy a new business.
- Your financial year-end date
- How many employees you envision having during the next 12-month period (If you don’t plan to employ anyone, you may fill in “0.”)
- If you do have employees, the first date that you will be paying them.
- Know whether your business is liable for quarterly excise federal tax returns. This will only apply if your business deals in goods and services, which are subject to excise tax.
- Your business’s primary activity—you may be required to provide more detail. There will be a drop-down box with a list of activities to choose from. Should your business’s primary activity not appear, you will need to click on “other.” You will then be provided with a form field in which you can describe your primary activity.
While this may seem like a lot of information and a long process, it really is quite easy. You will be filling in short lines of text and checking boxes. What is really important is to get your type of legal entity correct.
You may come across some terms that you are not familiar with, but don’t stress. If the term is underlined and printed in blue, you can click on that term or phrase for a definition.
You will receive your EIN number as soon as the information provided has been verified.
This is a quick process, and you will be given an option as to whether you would like to receive your confirmation letter online or via mail.
Should you opt to receive it online, it will appear on your screen immediately. Should you opt to receive it by mail it can take up to four weeks to arrive.
There is a dedicated Business and Speciality Tax line that is available to US citizens and residents on weekdays between 7:00 a.m. and 10:00 p.m. The number is (800) 829-4933.
You will speak to an IRS employee who will talk you through the questions. He or she will record your responses and provide you with an EIN.
If you are not a US citizen or permanent resident, you will need to call (215) 516-6999. It is important to note that this is not a toll-free number, but you can utilize Skype to make this call.
While less and less people are making uses of fax these days, this option still exists.
You will need to download the SS-4 form from https://www.irs.gov/pub/irs-pdf/fss4.pdf. If you are a US citizen or permanent resident, fax it to Internal Revenue Service, Attention: EIN Operation, at (855) 641-6935.
If you are not a US citizen or permanent resident but are residing in the US, you should fax it to Internal Revenue Service, Attention: EIN International Operation, at (855) 215-1627.
If you are not a US citizen or permanent resident and are not residing in the US, you should fax it to Internal Revenue Service, Attention: EIN International Operation, at (304) 707-9471.
Follow the instructions above to download the SS-4 form, then submit it by mail to Internal Revenue Service, Attention: EIN Operation, Cincinnati, OH 45999.
If you are not a US citizen or permanent resident, have no legal residence, principal place of residence, or principal office or agency in any state, you should mail it to Internal Revenue Service, Attention: EIN International Operation, Cincinnati, OH 45999.
You will receive your EIN in approximately four weeks.
It is important to note that while the online and telephone applications will result in a same-day EIN, it will take about two weeks before the IRS has your EIN number on their permanent records.
Only once this has been done will you be able to file an electronic return, make an electronic payment to the IRS, or pass an IRS Taxpayer Identification Number (TIN) matching program.
Is an EIN number free?
Yes, there is no charge for an EIN number.
Be wary of websites that appear to be the official IRS site but are in fact fake. Only use the official IRS site as these fake sites will take you through the whole process before requesting payment—a huge waste of time and money.
They may (or may not) actually submit the form, but it is not a complicated form to complete, and there is no payment of any kind required by the IRS.
How an EIN number is used for filing taxes
You will need to include your EIN number on all tax returns and tax payments to ensure that the correct information and records of tax and tax payment are allocated to your business.
You cannot submit tax returns without an EIN number, and if you make payments without it, your payment is likely to end up in a suspense account and not credited to your tax statement.
Should you forget your EIN number, you can call the IRS at (800) 929-4333 and explain that you applied online and have forgotten your number. They will ask you for additional information and look the number up for you.
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