What is an EIN Number?
Employer Identification Number (EIN) is one of the crucial things you need to know and understand well as a business owner who runs incorporated business in the United States. When opening a business in the United States, getting your Employer Identification Number(EIN) should be one of the first and essential steps to take.
It isn’t a new thing that every United States citizen has their unique social security number(SSN), which is used to identify them as state residents. Synonymous to this, businesses in the United States also need a means of identification.
The Internal Revenue Service needs to know who owns and runs a business, what province the business is run from and who is responsible for reporting taxes on behalf of the business.
There is absolutely nothing over the roof about EIN, and in just about a few minutes, you will get answers to the most asked questions that business owners in the United States are keen about.
What is EIN?
Employer Identification Number(EIN), Federal Employer Identification Number(FEIN) or Federal Tax Identification Number(FTIN) all mean the same thing. It doesn’t matter which one you are familiar with; they all perform the same function.
When the tax season is around, and you need to file your federal tax return, your EIN is the unique number that the IRS uses to identify your business entity.
Just as your SSN has 9 digits, the EIN is also a combination of 9 digits that are not as sensitive as the SSN and often come in a xx-xxxxxxx pattern in contrast to the xxx-xx-xxxx pattern of the SSN. The EIN isn’t as sensitive as the SSN doesn’t mean that it should not be kept safe. Whatever is important to the running of your business should be given some level of security.
What Determines If I Should Get an EIN?
The following are some of the reasons why getting an EIN may be an essential step for your business.
It doesn’t matter if you only have one employee or a bunch of employees. If your business requires hiring an employee at all, then you will need to get an EIN.
Your Employer Identification Number will not only be used to track your payroll remittances but will also be used to track your business’ income taxes. So, whether you have established a business other than a sole proprietorship, you will also need to get an EIN with or without any employee.
Banking and Finance:
For instances where your business might be needing financial or working capital, an EIN may be helpful. No banks or credit union wants to associate with businesses without an identity. Therefore, a valid EIN may be required to open a bank account for any type of business, an estate or non-grantor trust.
Self-employed retirement plans:
To facilitate federal tax treatment for a self-employed person who decides to open a Keogh or Solo 401(k) plan, an EIN is essential.
Why Do I Need to Get an EIN Even If It’s Not Required?
For sole proprietors, getting an EIN may not be necessary, but that doesn’t rule out the fact that it can still be beneficial to you in some cases.
From opening a business bank account to applying for business licenses and securing some types of financing, you may just need to get your EIN anyway.
Obtaining and using an EIN can protect your identity as a sole proprietor working as an independent contractor. Rather than providing your social security number to each of your clients, your EIN can always come in handy.
Aside from this fact, using an EIN also gives your business a touch of professionalism, which can help you build beneficial relationships with your clients.
How Can I Apply for an EIN?
Getting an EIN today has become a lot more straightforward and easy for business owners, unlike in the past when companies are expected to complete IRS-FORM SS4 to request for an EIN.
Today, however, the IRS has made applying for EIN a lot easier by introducing an online process. Therefore, if you are a new business or an old business that needs a new EIN for any reason, you can apply for your EIN now online.
What Information Do I Need to Obtain an EIN?
When applying for an EIN, there is essential information that must be made available at the time of the application. Also, you must take all the time you need to prepare for your application process, as it only takes one sitting.
The following are the information you should be ready to provide during your EIN application process;
- Details about entity type (i.e. partnership, cooperation, trust, LLC, estate, etc.)
- The reason you are applying to get an EIN. It is okay if you have several reasons for applying for an EIN, but it’s best to use some of the common reasons. Which may include starting a new business, hiring employees, banking purposes, creating a new pension plan, creating a new trust, changing the type of business entity
- The legal name of the business that needs the EIN and trade name (for cases where they are different)
- The first day you made payment to your employees
- The name of the person authorized to act on behalf of such business, telephone number and signature.
- The accurate description of your business’ activity. Do you perform specific services, sell specific products or produce a unique product? You should be prepared to describe your business in detail.
How Can I Do an EIN Lookup?
Looking up your Employee Identification Number could be something you may need to do at some point during the cause of running your business. It doesn’t matter what reason you are looking up your EIN for, here are two easy steps to get you up and running:
- If your company is privately run and you have all of your business and financial needs catered for by a hired professional accountant, then your accountant might just be the best person to ask.
- If you are looking up your employer’s EIN as an employee, you can find it right at the back of your W-2 form.
Now, you are sure not to get confused when you hear the words tax ID, federal Tax ID number or business ID number used interchangeably. These terms are all referring to your Employer Identification Number.
Whether an EIN is mandatory for your business type or not, it does more good for your business to have it than not to have it all.