You most likely have a 9-digit Social Security number that was assigned to you at birth. Most of us are familiar enough with our unique number that we can recite it on demand. Even in the worst of times, we can usually remember the first 5 or so digits before trailing off in a confused murmur.
Did you realize that your small business also needs its own unique number? Your Employer Identification Number (EIN) isn’t necessarily tied to Social Security, but it serves a similar purpose by officially identifying your business in a way that distinguishes it from the 30 million other small businesses in our nation.
Your EIN is mainly intended to assist in employment tax identification for your small business. Aside from the various tax functions your EIN allows you to carry out, you’ll also need it to apply for business licenses or open a business account at your bank.
Most businesses in America are supposed to have an EIN, even if they have no employees and aren’t technically an “employer.” So do you fall into this camp? The IRS has provided a handful of questions to help you ascertain whether or not you will be required to obtain an EIN. It only takes 1 “yes” to the following business questions to confirm that you’ll need to begin the process.
- Do I have employees?
- Do I operate as a corporation or partnership?
- Do I file one of these tax returns: Employment, Excise, or Alcohol, Tobacco and Firearms?
- Do I withhold taxes on income, other than wages, paid to a nonresident alien?
- Do I have a Keogh plan?
- Am I involved with 1 or more of the following types of organizations?
- Nonprofit organizations
- Farmers’ cooperatives
- Plan administrators
- Trusts, except for certain grantor-owned revocable trusts, Exempt Organization Business Income Tax Returns, IRAs
- Real estate mortgage investment conduits
Let’s assume that you answered in the affirmative to 1 or more of the previous questions—you now know that you need to acquire an EIN. While the process isn’t terribly difficult, it involves some major decisions. For example, you’ll need to decide how you’re going to structure your business (if you haven’t done this already). You have multiple options to choose from:
- Sole Proprietorship
- General Partnership
- Limited Partnership
- Limited Liability Company
- C Corporation
- S Corporation
There’s a lot of thought that needs to go into the decision regarding your business type. It’ll affect everything from your taxes to your business relationships to your growth opportunities. For this reason, many entrepreneurs seek the assistance of an attorney, accountant, or mentor as they prepare to apply for an EIN.
“You have to register your company correctly,” says a report from the Forbes Business Council. “Don’t take this part lightly! If you haven’t legally registered your business, technically, your contracts and agreements are not enforceable. I’ve seen way too many entrepreneurs zoom through the registration process and later find that steps were missed and their business was not registered properly. All business entities are registered at the state level, and then you obtain an Employer Identification Number (EIN).”
If you want to learn more about the EIN process, you can visit this application page provided by the IRS for details. You’ll discover that there are 4 different ways for you to apply for your EIN. Unsurprisingly, most small business owners opt for the online method. It allows you to easily upload the necessary information, have it verified in real time, and get your EIN issued almost instantaneously upon approval. As long as your principal business, office, or agency is based here in the United States, you qualify for this application method.
If you don’t meet the requirements for the online application or would simply prefer to use a different route to get your EIN, here are the 3 remaining options:
- Fax: You can always submit your application by fax. The IRS will send a response within 4 business days to the fax number you provided.
- Mail: This method is less preferable because the processing time takes up to 4 weeks. Unless you have lots of time to kill, you probably don’t want to put yourself in a position to wait for this long.
- Telephone: If you’re an international applicant, you can call 267-941-1099 to get your EIN. There are more hoops to jump through with this approach, given the international angle, so make sure to have all your documentation squared away in advance before making the call.
Be aware that these are the only legitimate application methods available to you. Some people trick small business owners into visiting their websites and then try to extract money from them.
“If you search online for ‘apply for EIN,’ you will find lots of sites that look like they are the IRS, but may in fact be fake EIN application sites,” cautions an Employer Identification Number analysis from The Balance Small Business. “They will start you on the application process, but only when you get ready to file will they ask for money. Don’t waste your time or money. The EIN application process is free, relatively painless, and quick.”
You might be wondering if your EIN is good for the life of your business. Usually, the answer is yes. But there are some situations, such as when you change from a partnership to a corporation, that could require you to get a fresh EIN. You can learn more from the various resources available through the IRS.
In most cases, you should be in great shape with the number you already have. Even if you change your business name, move to a new location, add a location, or modify the way your business is taxed, there’s no need to get a new EIN. It’s with you for the long haul.