Almost all types of business need an EIN (also known as a Federal Employer Identification Number or Federal Tax Identification Number). The IRS uses this number for your business the way it uses a Social Security Number (SSN) for individuals.
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The IRS uses your business EIN to identify your tax returns, business tax account, and documents. The EIN is the taxpayer identification number for businesses – it appears on all your business federal tax filings.
Tip: Some states require a separate State Tax ID number; other states use the Federal Tax ID number.
The IRS calls a business Tax ID number an “Employer Identification Number,” or EIN.
Tip: Both your individual SSN and your business EIN are nine digits. But SSNs (and ITINs) take the form 123-45-6789. In contrast, EIN numbers take the form 12-3456789.
Common names for the EIN include:
•Tax ID number
•Business Tax ID
•Business Taxpayer identifying number
•Business Taxpayer ID number
•Business Tax ID number
•Federal Business Tax ID
Tip: The EIN should be used only for business activities – it doesn’t replace your SSN for any other activities.
Does My Business Need a Federal Tax ID Number?
If your business is a corporation, it will need an EIN. This includes C Corporations and S Corporations. Also, if a business elects (under the IRS “check-the-box” rules) to be taxed like a C Corporation or S Corporation, it will need an EIN.
Tip: The “Employer” label in “EIN” doesn’t mean a business has to have employees to need an EIN. Instead, EINs are used by non-individual taxpayers (like estates, corporations, trusts, and partnerships) – whether or not they have employees.
LLCs: An LLC’s need for an EIN depends on how many owners it has and whether it must pay employment taxes for employees. If your LLC has two or more owners, it needs an EIN. If an LLC has only one owner, the IRS disregards the LLC and all the income, loss and deductions are reported on the individual owner's federal income tax return.
If you’re an individual and you own 100% of your LLC, the IRS will treat you as a sole proprietor (discussed below) – and generally won’t require an EIN for the 100%-owned LLC. But you will need one if you’re going to pay employment taxes (e.g., if the LLC has employees) or excise taxes (e.g., in the transportation industry). Also, you may want to get one to help add some separation between your business and personal income.
Sole proprietors: If you run your business as a sole proprietor and you don’t have any employees, the IRS generally allows you to use your individual tax ID (e.g., SSN) as your Tax ID number. But you might want to get a business EIN – even if you don’t have to – for other reasons: It helps avoid embarrassment or delay in payment if a business lead or a customer wants an EIN (instead of SSN) to seal a deal or pay your invoice. Also, a bank might require an EIN to open a business checking account.
Tip: For a sole proprietor, using an EIN instead of your SSN adds credibility. It also helps protect the privacy of your SSN. If you incorporate your business, you’ll generally need an EIN (unless you’re a single-owner LLC).
The IRS requires you to have an EIN, even though you’re a sole proprietor, if:
•You have a Keogh pension plan
•You have any employees
•You have to file excise tax returns (e.g. alcohol, tobacco, firearms)
What Info Is Required for an EIN?
When applying for your business EIN, you’ll need to provide certain information:
•Business name, address, and trade name (your “doing business as” DBA name, if you have one)
•Responsible party’s name and tax ID (generally a person with authority to control, direct, or manage your business and disposition of its assets and funds)
•Type of business (e.g., corporation, sole proprietor) and date your business started
•Reason for applying (e.g., starting a new business, hiring employees)
•Number of employees you expect, whether you’ll pay employment taxes annually (if you qualify) or quarterly, and first date wages were paid
•If your business is an LLC, the IRS will ask for the number of owners.
You’ll also need to list your principal business activity:
•Accommodation & food service
•Finance & Insurance
•Health care & social assistance
•Rental & leasing
•Transportation & warehousing
•Wholesale-agent/broker or Wholesale-other