Apply for EIN Number: Everything You Need to Know
Your employee identification number, or EIN, allows the IRS to identify you for tax purposes. 7 min read
2. Entities that Need an EID/Tax ID
3. EIN vs. Tax ID Number or TIN vs. FEIN vs. Federal Tax ID Number
4. How to Apply for an EIN?
5. What if I lose my EIN?
Apply for EIN Number
When you apply for EIN, it's one of the first steps for your business and filing for taxes. It's similar to a Social Security number in terms of identifying purposes.
What is an EIN?
Your employee identification number, or EIN, allows the IRS to identify you for tax purposes. It's essentially a tax ID for the federal government that is attached to your business. You can apply for an EIN by using Form SS-4 from the IRS. It's a free process that is meant to be self-explanatory; however, many people have trouble navigating their way through the paperwork.
For professional help, you can go to a document preparation website and get a third party to help you complete and file your paperwork. That way you know you've successfully submitted the right documents to receive your EIN.
Reasons to Apply for an EIN
There are several reasons you might need to file for an EIN. These include:
- Opening a new business
- Hiring any employees, even those in the household
- Opening a bank account requiring an EIN
- Opening a business line of credit or bank account
- Changing your business's legal structure or ownership
- Forming a pension, trust, LLC, corporation, or partnership
- Representing an estate that entails a business once the owner has died
Entities that Need an EID/Tax ID
If you own a business as a sole proprietor, you're personally responsible in the event you have debt or losses. This is the downside compared to a corporation or LL. Still, you can elect to operate under your own name as a sole proprietor, or create a trade name -- a business name you make up. This is a cheap and easy way to establish your business, making it a popular option for individual businesses. It's also easy to understand your taxes when you're a sole proprietor because any money brought in by your business simple counts as personal income.
Another type of business entity is a partnership, which is unincorporated. It brings together at least two individuals who are in the same business or trade entity. All partners contribute skills or finances and consequently share both profits and losses that come with the business.
When you have a partnership, you don't have to pay income tax each year. All the partners instead file any income or loss from the business on their own tax returns. Another required document for the partnership is an annual information return. This reports all of your financial information, such as losses, income, and dedications. Partners must take care of their own withholdings, such as self-employment tax and income tax, because they aren't actual employees.
An LLC, or limited liability company, utilizes individual taxes just like a sole proprietorship or partnership, but also includes some of the protections associated with a corporation. Depending on which state you live in, you'll be subject to different LLC rules regarding costs and requirements for names.
An LLC can have several members, which can include additional entities like other LLCs or even other partnerships or corporations. They can also just have a single member, which is known as a disregarded entity. The main perk of choosing an LLC is protection because members aren't help personally responsible for the business's financial liabilities or debt.
An extremely common type of business is a corporation. This entity is typically founded by a group who then apply for a charter. This is done through the state's secretary of state. A corporation is considered a permanent entity and there are several sub-sets to choose from. The most common ones are C-Corporations and S-Corporations, which both have different taxation requirements. A C-Corporation is composed of shareholders who pay taxes on the company's earnings.
A trust sets out rules regarding any property held in the trust in relation to the beneficiaries. This is a popular way to avoid having to pay estate taxes. You can also save money and time with a trust by avoiding probate, particularly if there is a sudden death leaving assets behind as a legacy.
There are three components of a trust: principal, interest, and profits. Profits come from interest earned and is also knows as capital gains. The person who initially creates the trust is called the grantor and s/he outlines any rules, like who receives the income or capital gains. Another trust benefit is that you get more control of your assets, particularly when it comes to avoiding your creditors of your heirs. There's also more privacy because trust assets don't move within public probate.
An S Corp can have either a single person or multiple people. Articles of incorporation must be filed in the state in which the S Corp is located. In this business entity, the income, losses, credit, and even deductions are passed on to shareholders instead of the corporation itself. So, the shareholders must report the business financials on their own personal tax forms as part of their income.
This helps circumvent double taxes of employees in an S Corp. In a regular corporation, you'd have to pay shareholder income taxes and corporate taxes, so this helps eliminate the latter. There are certain qualifications you must meet for an S Corp, primarily surrounding gains and passive income.
An administrator will manage any money and property in the event someone dies. An estate refers to any assets left after an individual dies, including money and property. The people receiving the assets are called heirs or beneficiaries. The estate executor must collect the assets, pay any creditors, then pass on whatever assets are left to the beneficiaries. The executor of the estate will receive Letters Testamentary, which is essentially authorization from the probate court to have legal and tax rights for the estate.
Taxes still have to be filed for the deceased person, for the most recent year as well as any years that weren't filed prior to the death. The estate itself requires separate taxes to be filed, and this is where the federal tax ID is needed.
Another type of business entity requiring an EIN is a Personal Service Corporation or PSC. Owners are similar to an employee in that they provide the corporation with professional services. If your PSC meets IRS ownership qualifications, you can receive unique tax benefits.
Alternatively, a nonprofit organization, or NPO, usually advocates a social cause or ideology, rather than focusing on commercial profits. Revenue is used to fund additional missions or projects instead of being distributed to shareholders. Legal and financial guidelines vary from state to state. Consequently, the NPO can file articles of incorporation in a state with tax benefits it prefers. One benefit of an NPO is that it's tax exempt since it's not working for profits. You also don't have to incorporate your NPO, but you will have to report and pay federal taxes in this case.
A nonprofit that is unincorporated also can't apply for grant money, whether it's public or private. They're not able to ask for donations that are tax-deductible and can't take any tax exemptions for property. In most scenarios, it's better to incorporate an NPO.
Similarly, churches or even church controlled organizations meeting certain qualifications can gain tax exempt eligibility from FICA taxes. These taxes are paid by employers to contribute to employees' Social Security and Medicare taxes. In order to be eligible, a church should be able to define itself as a convention or church association. A school operated by a church may also qualify.
A church controlled organization refers to any 501(c)(3) organization that receives no more than 25 percent of its income from the government or merchandise sales. It also can't provide services or goods to the public if they're charging more than the actual cost.
EIN vs. Tax ID Number or TIN vs. FEIN vs. Federal Tax ID Number
The IRS uses your federal tax ID number (FEIN) to identify your business as a taxpaying entity when filing any relevant business tax returns each year. You need to get an EIN or a FEIN in any of the following circumstances:
- Your business is a corporate or a partnership
- You withhold revenue (unless for payment to a foreign alien)
- You deal with trusts, nonprofits, estates, plan administrators, farmers co-ops, or a real estate mortgage business
A TIN, or tax ID number, can be given out by either the IRS or by the Social Security administration. It's also a number used to identify tax filers in the U.S. FEIN, TIN, and EIN are all types of tax identifications that are typically used interchangeably.
How to Apply for an EIN?
You can apply for your EIN by going online to the IRS EIN website. At the bottom of the page, click the button stating you can "Apply Online Now." From there you'll be directed to the application for obtaining your EIN. You can then begin the application process.
First, you'll answer somewhere between 10 and 15 questions about your identity. If you have trouble for some reason, you can also apply for an EIN over the phone. You can reach the IRS by calling (800) 829-4933 anytime starting at 7 a.m. and up until 10 p.m.
Alternatively, you can send your application by fax. Fill out IRS Form SS-4, Application for Employer Identification Number. Check online for the right fax number for your state. When faxing in your application, expect to receive your EIN by the end of four business days.
Finally, you can mail the same form directly to the IRS. It's a longer process, so don't expect to hear back before four weeks. Again, the mailing address for the proper IRS location depends on where your business is located.
What if I lose my EIN?
Your first step is to go through all your business files to locate the original EIN notice from the IRS. If you applied online, it will be a computer-generated notice. You can also check your bank account, your records from employee's payroll and any state application accounts. Another likely place to find your EIN is on your tax returns for the business.
If you're still not having any luck finding your EIN, you can call the IRS on their Business and Specialty Tax Line. The number is 800-829-4933, and the lines are staffed on weekday from 7 a.m. – 7 p.m. local time. Before you get your EIN, you'll have to provide specific information to identify yourself. Only authorized persons can call for this information, including a partner, trustee, sole proprietor, corporate officer, or executor of an estate.
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