All About EIN, Obtaining an Employer Identification Number, or EIN, from the IRS is one of the most important obligations for many new or expanding businesses.

An EIN is a nine-digit number that uniquely identifies your company for tax reasons. It’s comparable to a Social Security number, except it’s solely used for corporate purposes.

 

You’ll need an EIN as a business owner to create a business bank account, apply for business permits, and submit your tax returns. It’s a good idea to apply for one as soon as you start thinking about starting a business. This will ensure that there are no delays in obtaining the necessary permits or funds to operate.

Who needs an EIN?

An EIN is required for every firm that employs people. Non-employers, on the other hand, must get one if they operate as a company or partnership. As your company expands, make sure to visit the IRS website and its resources for a comprehensive list of who need an EIN. If you are beginning a business, administering an estate, or serving as the trustee of an irrevocable trust, you will most likely need to get a federal Tax Identification Number for your organisation. Whether you run a business or not, the identification number is known as an Employer Identification Number or EIN for short.

Why do I need an EIN?

EINs can be used for a number of purposes. The following are some examples of common applications:

Corporations 

Because a corporation is legally a distinct entity with its own liabilities and debts, it needs its own EIN. In certain circumstances, an existing corporation may be required to obtain a new EIN, such as when the business name changes, the business becomes a subsidiary of another corporation, the business structure changes to that of a sole proprietorship or partnership, or a new corporate charter is created.

LLCs (Limited Liability Companies) 

Many LLCs are required to get EINs. If the business has two or more members (owners), it can opt to be recognised as a partnership or a corporation, but it must still acquire its own EIN. The proprietor of a single-member LLC may not need to get an EIN unless the business has one or more employees or the business is declaring bankruptcy.

Partnerships

A partnership is defined as two or more partners collaborating on a commercial endeavour. Except for joint ventures formed just to share expenditures, most partnerships require EINs. Old partnerships may need to file for and receive new EINs if one partner takes over and forms a sole proprietorship, if the partnership decides to incorporate, or if the existing partnership is dissolved and a new partnership is created.

Sole proprietorships 

While most sole owners do not require EINs for their firms, they may opt to do so, as explained further below.

Trusts

Certain forms of trusts may need the application of trustees or other fiduciaries for EINs. For EIN purposes, the “trusts” umbrella also encompasses Ginnie Mae (GNMA) pools, Fannie Mae (FNMA) pools, custodianships, guardianships, receiverships, conservatorships, and escrow accounts. Irrevocable trusts, including testamentary trusts, require their own EINs since once established and funded, they are different legal organisations.

Employee benefit programmes

 including health and retirement plans, must have their own EINs. This covers Keogh and Solo 401(k) plans for single participants, profit-sharing plans, SIMPLE IRAs, SEP IRAs, and other employer-sponsored benefit plans.

Corporations providing personal services

If the primary activity of your company was to provide personal services to the owners, such as accounting, consulting, architecture, engineering, actuarial science, health, law, or the performing arts, you may be classified as a personal service corporation, which requires its own EIN for tax purposes.

Household employers and their agents

If you hire someone to help you around the house, you are a household employer and will most likely require an EIN to submit payroll tax withholding. Likewise, if you are functioning as an agent for a household employer, you can file for an EIN on their behalf.

Person bankruptcy

When an individual files for bankruptcy under Chapter 7 or Chapter 11 of the Bankruptcy Code, the bankruptcy estate established is its own legal, taxable entity that requires its own EIN. Married spouses who file a joint bankruptcy petition will each require an EIN.

Why Would You Require an EIN?

An EIN may be required for a variety of purposes, including company, estate, or trust banking, and recruiting staff. Businesses also require EINs when filing employment tax filings, excise tax returns, or alcohol, tobacco, and gun returns. The following are some of the reasons why you might require an EIN: 1. Banking and finance 2. Personnel 3. Situations in which sole owners may want an EIN

Banking and finance 

Many banks and credit unions demand a valid EIN before opening a bank account for any form of business, estate, or non-grantor trust. An EIN may also be useful for a firm seeking funding or working capital.

Personnel 

You will need an EIN if you are recruiting employees (whether one or many). The IRS will use this number to trace your payroll tax remittances. Business owners who start a type of business other than a sole proprietorship will also require an EIN, regardless of whether the business will employ anybody. Your EIN will be used to keep track of your company’s income taxes.

Situations in which sole owners may want an EIN

 Sole proprietors who file for bankruptcy for their firm, as well as those who acquire or inherit an established business that they intend to run as a sole proprietorship in the future, will require an EIN.

Why You Might Want an EIN Even If It Isn’t Necessary

Even though most single owners will not require an EIN, it may be useful in some instances.

To begin, sole proprietors who work as independent contractors can assist secure their identities by acquiring and utilising an EIN with their clients instead of revealing their personal Social Security numbers.

An EIN can also help an independent contractor or sole proprietor look more professional to prospective clients. Some solo owners feel that this makes it easier to land and maintain customer connections.