Employer Identification Number: Everything You Need to Know

 

When it comes to federal income taxes and your business, understanding the basics of the Employer Identification Number (EIN) is important.

This is especially true when just starting your business and determining if you need to apply for an EIN. It also comes up when you’re changing parts of your business and trying to determine if you need to apply for another EIN.

If you fall into either of those categories, we’ve got you covered.

We know you’ve got a million things to do today and reading IRS mumbo jumbo isn’t one of them. But we also know you don’t want to be in trouble with the IRS. Yikes!

To save you the time and headache, we’ve compiled a list of every question you might have and every answer you might want when it comes to figuring out your EIN. You’ve got this.

What’s an EIN?

EIN stands for Employer Identification Number. Basically, it’s like a Social Security number for your business. The IRS uses this number to easily identify your business.

Do I Need an EIN?

There are several reasons why you might NEED an EIN:

  • You must have one in order to pay employees.
  • You must have one in order to file business tax returns (even if you don’t have any employees).
  • Banks, credit unions, and brokerage houses will often not open an account for a business that doesn’t have an EIN.
  • Subcontractors are usually required to have an EIN so that the primary contractor can report income paid to those subcontractors (that might be you!) on a 1099.

There is also an important reason why you might WANT an EIN even if you don’t have to have one:

  • If your business is a sole proprietor or partnership (single-member LLC or multi-owner LLC), you can file income taxes through your personal tax return. However, many business owners choose to obtain an EIN in order to protect their Social Security numbers from identity theft. This way, on any paperwork that is filed with anyone and everyone, the business can give an EIN rather than the owner’s Social Security number.

How Much Does an EIN Cost?

Good news! It is completely free to obtain an EIN. Beware: If you are on a website that is trying to charge you for an EIN, then you’re not in the right place. Only apply through the IRS’ website.

Who Can Apply for an EIN?

You do not need to be an “employer” to apply for an EIN. You just need to run a business. If you control, manage, or direct the funds and assets of the business, the IRS calls you the “responsible party,” and you can apply for your own EIN.

How Do I Get an EIN?

If your principal business is in the U.S. or a U.S. territory, you can apply for an EIN easily online. It’s so easy, in fact, that your information will be checked as soon as you complete the form, and you will immediately be given your EIN to download, save, or print. Make sure you put it somewhere that you’ll be able to find later.

There are only 2 hangups about the online application:

  1. You’ll need to complete the application in one session. You cannot save and come back later, so make sure you have all of your information in front of you and enough time to complete the form. Warning: After 15 minutes of inactivity, it will kick you out and you’ll have to start over.
  2. Since your application is verified immediately, you can only complete the online form Monday through Friday from 7 a.m. to 10 p.m. EST.

If you don’t want to apply online, you can also apply via mail or fax. You’ll just need to fill out the Form SS-4 and send it to the correct address or number.

What Information Do I Need to Complete the EIN Application?

Have all of the following information ready to fill out the application:

  • Your Social Security Number or Individual Taxpayer Identification Number (ITIN)
  • Date the business was started or acquired
  • Date that you first paid wages or annuities

Do I need a new EIN if I change my business name?

Nope, but you do need to tell the IRS that you changed your business’ name.

Can you have multiple EIN numbers?

Each business will be given only one EIN. However, as an entrepreneur, you can start as many businesses as you want (awesomeness!), and you can obtain a different EIN for each of those businesses.

What Are the Benefits of an EIN?

There are several benefits:

  • Using an EIN rather than your Social Security number on paperwork helps prevent identity theft.
  • Having an EIN can speed up transactions at the bank like opening a business account and receiving bank loans.
  • Providing an EIN to clients and customers rather than your Social Security number adds credibility to your business and shows that you’re a serious business owner.
  • If you don’t have an EIN, you will have a difficult time establishing your business’ credit history which will be evaluated if you ever need a business loan.

Can you transfer an EIN to a new owner?

Nope.

When Do I Need to Apply for a New EIN?

Luckily, if you have made common changes such as name changes, address changes, or opening new locations, then you do NOT need a new EIN.

However, in some cases, you will need to apply for a new EIN for your business. Basically, if the owner or structure of your business has changed (like moving from sole proprietor to a corporation), then you need a new EIN.

If you think you might need a new EIN, find the type of business you own in the list below, and then ask yourself the questions under that business type.

Sole Proprietors or Single-Member LLCs

You must obtain a new EIN if you answer YES to any of these questions:

  • Are you subject to a bankruptcy proceeding?
  • Did you incorporate after obtaining your previous EIN?
  • Have you started operating as a partnership?
  • Did you purchase or inherit an existing business that you operate as a sole proprietorship?

Partnerships or Multi-Owner LLCs

You must obtain a new EIN if you answer YES to any of these questions:

  • Have you incorporated?
  • Has your partnership been taken over by one of the partners and is now operated as a sole proprietorship?
  • Have you ended an old partnership and began a new one?

Corporations

You must obtain a new EIN if you answer YES to any of these questions:

  • Did you receive a new charter from the secretary of state?
  • Are you now a subsidiary of a corporation?
  • Have you changed to a partnership or a sole proprietorship?
  • Have you started a new corporation after a statutory merger?

Do I Need to Keep My EIN Secure?

Nope. Unlike a person’s Social Security number, an EIN is not considered sensitive information. Don’t worry about putting it in emails or on websites.

Does My EIN Need Renewed?

No. An EIN never expires.

If you are still wondering whether or not you need an EIN or a new EIN, then make sure you contact a CPA to get yourself straightened out. When in doubt, it is better to obtain an EIN rather than to not have one and need one. It’s free and easy. Go for it and cross that baby off your to-do list today.

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Amy Northard, CPA

The Accountant for Creatives
+ taxes + bookkeeping + consulting
+ Hang out with me over on Instagram!

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