Your LLC is unique. There’s not another one like it. Competitors may sell similar products or provide comparable services, but your LLC is still one-of-a-kind. It’s not a carbon copy of some other, identical business. Because it’s so unique, the state needs a way to recognize it for processes like taxes and employment. This distinguishing label is called an Employer Identification Number (EIN).
We often hear entrepreneurs talk about their confusion regarding the EIN, especially when it comes to which businesses need one and which activities require it.
The EIN is actually used by a wide variety of businesses, and it facilitates a number of important business tasks. This article is your guide to all things EIN. Read on and you’ll find answers to common questions about it, when it’s necessary, and how to acquire and use it.
What Is an EIN?
Think of the EIN as your company’s Social Security Number, the unique, nine-digit number used to identify it on tax and government documents. In the same way that you use your SSN to confirm your identity on tax returns, your LLC will use its EIN to identify itself to the federal government. EINs are issued by the Internal Revenue Service and are primarily used for tax purposes, although they have numerous other functions as well.
What Is an EIN Used For?
Do you plan on hiring employees for your LLC? If so, you’ll need to acquire an EIN. Paying employer taxes is the primary use for this number, so obtain one right away if you currently maintain staff members or plan on hiring them in the future.
Even if you don’t have employees, if you’ve elected to have your LLC taxed like a corporation or partnership, you will also need an EIN. That’s because, for these business types, the company is taxed as a separate entity while, by default, LLC owners report the company’s income on their personal returns.
But taxes and employment aren’t the only reasons you might need an EIN. Banks often require one to open a business account or establish a line of credit. Certain business licenses and permit applications require an EIN as well.
While those are the most common reasons to apply for one, EINs are also necessary for the following applications:
- Filing an employment tax return, an excise tax return, or an alcohol, tobacco, and firearms tax return
- Withholding taxes on income paid to a non-resident alien
- Having a Keogh tax-deferred pension plan
- Hiring freelancers or contractors
There are very few LLCs that don’t fall into any of these categories, so chances are your company will need an EIN. But let’s say you operate a single-member LLC and you don’t meet any of these conditions. Even in this scenario, you still might want to get an EIN so that you don’t have to use your Social Security Number in an official business capacity, as the EIN can replace your SSN for any business transaction, protecting your privacy. In general, an EIN makes life easier for your LLC, so it can be a good idea to apply for one regardless of circumstances.
How Do I Get an EIN?
With all this talk of taxes, payments, and rules, here’s the silver lining: the IRS makes it incredibly easy to acquire an EIN, and it’s entirely free. You can apply for one online, by fax, or by mail, and international applicants may also apply via telephone. The quickest, easiest, and most popular application option is online through the IRS website.
Grab all the information you’ll need before sitting down to apply. Here’s what the form requires:
- The legal name and physical address of your business
- Responsible party’s name and Social Security number (typically your own, or one of your co-owners)
- Number of owners and employees
- Date and location of your business formation
- The nature of your business
There are also plenty of online business service providers that will offer to acquire an EIN on your behalf, and they won’t drain your bank account either. However, we generally don’t advise our readers to go this route. The EIN application process is so quick that, in the time it would take to provide the EIN service with your information, you could have just finished the form yourself for free.
When Does a Business Need to Acquire a New EIN?
Certain situations might require your business to obtain a new federal tax ID, even if you already have one, but these situations are few and far between. According to the IRS website, businesses typically need a new EIN whenever they change ownership or their business entity.
The rules and regulations regarding when a company does or does not need to pursue a new EIN vary by business structure, so if you’re uncertain whether you need one, we recommend that you take a look at the IRS guide called “Do You Need a New EIN?” This guide lays out all the circumstances that would necessitate a new EIN for each business type.
Even if it doesn’t initially seem like your LLC will need an Employer Identification Number, there are many crucial business activities that require one, so it’s highly unlikely that your business will be able to operate without it. Plus, they can provide plenty of benefits even for LLCs that don’t hire employees or pay corporate taxes.
The process is fast, easy, and free, so there’s really no reason to not acquire one, regardless of the nature or structure of your business. So, what are you waiting for? Go get an EIN for your company today!