EIN or employee ID number serves as a unique identity of every business for tax purposes. It is the same as your personal Social Security number but for a business entity. Most businesses need EIN, especially if they have employees, and others may not.
When to Apply for EIN Number?
As soon as your business starts running, you might need federal ein (fein) number immediately. You can wait until your business gets registered with your state, but you’ll need EIN, once you open a business bank account. EIN is the primary requirement for firms to open an account for debits and credits.
What’s the purpose of EIN?
It is used for the following documents such as:
- Applying for a business license
- Opening a business bank account
- Tax reports – an EIN is needed on all federal income tax forms and federal employment tax forms
- Electronic tax returns/payments – most tax payments are made electronically, and EIN is your unique business identifier on all tax payments and returns
- State taxes – it is a requirement in other states.
Why Your Business Might Need EIN?
According to IRS, your business regardless if it’s small or big requires an EIN due to the following scenarios:
- You have employees
- You file for employment taxes, alcohol, tobacco, excise taxes, or firearm tax returns
- Your business is linked with non-profit organizations, estates, trust, real estate mortgages investments, cooperatives, or employee plans
- Your business is tax as a partnership or corporation or limited liability
- You withhold taxes on income to a non-resident.
Even if your business doesn’t fall in any of the categories listed above, you might still need an EIN. Especially if you want to open a business debit or credit account, or you need a loan from a bank.
Sole Proprietorship: Does It Need EIN?
If you plan to start a sole proprietorship business, and you don’t want to hire employees, then you’re not required to get an EIN. You’ll be filling your income taxes with your individual tax id; you may also use your SSN (Social Security number) as your business unique identifier.
Is EIN Required for Qualified Joint Venture?
A qualified joint venture is the usual type of conjugal business. Generally speaking, spouses don’t need to have an EIN since both of them are counted as one or sole proprietors for tax purposes. But if both of you already have a husband-wife business partnership with a registered EIN, then retain the EIN in case your partnership comes to an end.
You may also review to IRS website for the checklist about the different situation in which you might need an EIN for your business.
When Not to Apply for EIN?
According to IRS, you don’t need to apply for a new EIN if:
- Your corporation or partnership declares bankruptcy
- You change the name business legal name
- Your corporation is declared as S corporation
- You change the location of your company, or you branched out – instead use Form 8822 for the change of address
- You stated on form 8832 Entity Classification Election to change your business entity.
You can apply for federal ein (fein) with the IRS (Internal Revenue Service). You can fill-up the form through online or talk with them over the phone, send the completed form via mail or fax.