Managing a small business can be a fun and challenging process. While the excitement of growth and success keeps small business owners motivated, many tasks must be completed to ensure your small business is compliant and secure. In the beginning phases of a small business, it's crucial to determine if you need an EIN and how to get one.
What is an EIN?
An Employer Identification Number (EIN) is a unique nine-digit number used to identify and distinguish your business for many tax purposes. An EIN can also be known as a Federal Employer Identification Number (FEIN), a Federal Tax Identification Number (TIN), Federal Tax ID, or even a 95 Number. An EIN is commonly formatted with the first two digits separated by the last seven (Example: XX-XXXXXXX). An EIN can be thought of similarly your Social Security Number (SSN) since they are both Taxpayer Identifications Numbers. However, your SSN identifies you while the EIN identifies the company.
Do I need an EIN?
There are many reasons a business may need to obtain an EIN.
- If you plan to hire at least one employee, you will need an EIN to include on the payroll documents you will submit to the IRS. For example, you must have an EIN to make Social Security contributions, pay income tax, and more.
- Each quarter, you must submit Form 941 to report the wages you've paid throughout the quarter and the employment taxes. One of the first sections you must fill out on Form 941 requires you to put your EIN.
- If your company intends to utilize services from the bank, such as obtaining a business bank account, applying for a business credit card, or opening a loan, you will need an EIN. The EIN will be used on essential documents to identify your business and obtain the bank's services.
- If you have a self-employed retirement plan, such as a solo 401k, you will need to use an EIN to identify your small business.
- There are other forms that a business may be required to file where an EIN is needed. Some of these include Form 720, the Quarterly Federal Excise Tax Form. Your EIN is required on Form 720, as well as the payment voucher. Other tax returns that will need an EIN include employment, fiduciary, and alcohol, tobacco, and firearms.
If any of the above scenarios describe your business, you are required to obtain an EIN. For more information, visit the IRS website.
If your company does not meet any of the IRS-provided qualifiers for an EIN, you can still request an EIN for non-tax purposes. It may be beneficial to have an EIN in case of emergencies. Since the IRS will issue one even if you don't necessarily need it, you could apply for your company to have an EIN as soon as you determine your individual and company eligibility.
How do I get an EIN?
To obtain an EIN, you can apply by fax, mail, telephone, or through the IRS website. The IRS is the only resource you should trust to obtain your EIN as there may be scams offering an EIN for a price. Through the IRS, getting an EIN is free; however, it can take some time since the IRS has issued a daily limitation for the number of EINs they can give per day.
To apply for an EIN, you must first determine your eligibility. EINs can only be issued to companies located in the United States or other U.S. territories such as Puerto Rico and Guam. The only person that should be applying for an EIN should be the one owning and operating the business, and they must have a Taxpayer Identification Number such as an SSN.
Once you have determined you are eligible to apply for an EIN, you can begin the application and validating process. It would be best to have all the necessary information for validation nearby as you cannot save your progress or go inactive during the process. Once you submit your EIN application, you will receive a confirmation you should keep in your files.
Where can I find my EIN?
Once an EIN has been established, you should keep it in a safe place with other company documents. The first document that holds your EIN will be the confirmation letter you receive from the IRS.
What do I do if I misplace my EIN?
If you cannot locate your EIN in your files, you can call the IRS's Business and Specialty Tax Line. After verifying your identity and eligibility to receive this information, they can complete a search to find your EIN.