EIN Requirements: Everything You Need to Know
EIN requirements are specific in nature and necessary to indicate a company is recognized in the United States as a tax-paying entity.3 min read
2. EIN Requirements
3. Obtaining an EIN
4. Where is an EIN Used
EIN requirements are specific in nature and necessary to indicate a company is recognized in the United States as a tax-paying entity. An EIN, also known as an Employee Identification Number or Federal Income Tax ID Number, is used to complete tasks such as opening a business credit card, opening a business bank account, or filing business taxes. This eliminates the use of having to use a personal Social Security Number.
Determining If You Need an EIN
The specific reasons why you would need an EIN includes the following:
- The business has employees.
- The business is operated as a corporation or partnership.
- The business withholds income tax or other purposes related to payment of wages to a non-resident alien.
- If a person is a part of a trust, estate, Keogh plan, farmers cooperative, real estate mortgage investment organization, or plan administration.
- If taxes are filed on excise, tobacco, alcohol, firearms, or employment.
If the entity is a sole proprietorship or single-member LLC and doesn't have any of the above conditions, an EIN is not required and the proprietor or member can use their Social Security Number. While this is possible, most single member business owners will still acquire an EIN to protect themselves from identity theft and to give them the ability to separate business and personal transactions and accounts.
In order to receive an EIN, the business must be located within the United States and the person who is applying must have a Social Security Number or Taxpayer Identification Number. The type of entity applying for an EIN can fall into a range of organization types including:
- Sole proprietorships
- Limited liability companies (LLCs)
- Government agencies
Regardless of the type of entity, there is not a size requirement or limitation to the number of employees. From a sole proprietorship with one owner to a corporation with thousands of employees, both can apply for an EIN. If the person applying does not have a Social Security Number, they will have to obtain an individual Tax Identification Number before they apply for a business EIN. To do this, file form W-7 with the IRS.
Obtaining an EIN
To obtain an EIN, the process begins with preparing IRS form SS-4 for the business. The form, when completed, must be submitted to all relevant agencies. When completing the form, be sure to have the following listed with correct information:
- Legal name of the business.
- Legal name of the person applying.
- Trade name, if applicable.
- Mailing address, street address, country,and state where the business is located.
- Name and Social Security Number or EIN of the responsible party.
You will also need to supply the following information:
- What type of business entity is requesting the EIN.
- The number of members, if you are applying as an LLC.
- The state or country where incorporation took place, if you are applying as a corporation.
- The date the business was started or acquired.
- The maximum number of employees expected in the next twelve months and the first date wages were paid.
- The primary activities of the business.
The most efficient way to apply is online and takes a day to complete typically. For those who would prefer to mail or fax in IRS form SS-4, the completion time will be longer. Fax applications take about four business days and your EIN will be faxed to you. If the application is mailed, the return time is about four weeks. For any business that is located outside the United States, applications can only be received by phone or mail.
Any sole proprietorships and general partnerships that change their corporate structure must reapply for a new EIN. This also applies to any corporation or LLC that reforms.
Where is an EIN Used
An EIN is used for many important business functions including:
- Opening financial accounts.
- Tracking company records including invoicing, which allow a company to pay bills and collect debts.
- Hiring employees.
- Paying taxes and complying with tax law.
The EIN is used by the IRS for federal tax reporting, however, some states also require that a business file for a state-level Tax Identification Number.
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