What is an EIN Number? | Employer Identification Number (EIN) Guide

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To start a business, you need to complete a lot of paperwork. That includes paperwork that will initially form your business and help to identify it to others. An EIN is one of the essential parts to starting and owning a business.

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What is an EIN Number? | Employer Identification Number (EIN) Guide

Steps to learning about EIN Numbers

  1. What Is an EIN?
  2. What Is an EIN for?
  3. Why Do I Need an EIN for My LLC?
  4. How Do I Apply for an EIN?
  5. What Is the Difference Between a Tax ID and an EIN?

1. What Is an EIN?

An EIN is also known as an employer identification number, federal identification number, or a tax ID number. This is because although it’s always the same unique number, it fulfills a lot of different roles. An EIN is like a social security number for a business. It’s a unique government identifier that’s used on paperwork. EINs are offered by the Internal Revenue Service, unlike other tax ID numbers, which may be offered up by the state.

EINs are acquired through an application process with the Internal Revenue Service, during which time a business owner will need to report some basic information about their business. From then on, the company will always retain the same EIN, and the EIN will be permanent and will not need to be renewed. The EIN will then be used as an identifying number on much of the organization’s paperwork.

2. What Is an EIN for?

An EIN is for a number of different things, such as starting company bank accounts, filing different types of taxes, paying out employees, getting licenses, acquiring permits, and taking out lines of credit and loans for the business. EINs are required for businesses for regulatory reasons and purposes of financial compliance; consequently, EINs are referenced on a large number of financial and legal documents.

Company bank accounts require an EIN or Tax ID number to identify the business as a unique entity and verify that the business is trustworthy and reputable. Further, Tax ID numbers are regularly used for filing taxes: state taxes, federal taxes, payroll taxes, general excise taxes, and sales taxes. Without an EIN, these tax payments will not be able to be filed, and the business itself may experience penalties regarding the lack of timely filing.

When employees are paid, EINs are used to report payroll taxes and on payroll reports. EINs are also used to get licenses and permits needed for the operation of the business. As with bank accounts, business owners aren’t able to get lines of credit or loans without an EIN. A business without an EIN will not be able to effectively operate.

3. Why Do I Need an EIN for My LLC?

An LLC will need an EIN for the purposes of federal compliance, when it comes to hiring employees, paying out vendors, and managing bank accounts. State licenses and local permits will require that an LLC have an EIN, and it won’t be otherwise possible for the business to take out loans or establish company lines of credit without a tax ID.

A company without an EIN isn’t going to be able to hire employees or be able to effectively work with contractors, as they won’t be able to report wages or fill out the required paperwork to ensure that employees are hired legally. Not all LLCs hire employees, but those that do will need an EIN early on in the process.

Without an appropriate EIN, it may not be possible for a company to protect a business owner from potential liability, as the company won’t be able to start business bank accounts and business loans. Many items of paperwork that are necessary from an administrative stand point for an organization will not be able to be filed without an EIN.

Further, EINs are often used when dealing with other companies. An EIN may be necessary for businesses interested in procuring wholesale discounts from other companies, or may be necessary for a business to establish a business account with a vendor.

4. How Do I Apply for an EIN?

An EIN can be applied for in many ways: online, by mail, or by phone. In order to apply for an EIN, a business owner needs to have basic information about their company, as well as the type of business it will do, its contact information, and its state of organization. If you need more information on how to apply visit this detailed guide on how to apply for an EIN number.

To apply for an EIN number online, you want to have your basic business information on hand:

  • Business Name as is or will be registered with your state.
  • Responsible Party information including:
    • Legal Name
    • Social Security Number
  • Physical Business Address
  • Contact Phone Number

Start an Online EIN Number Application

Through third-party services, an EIN can be acquired immediately online. Through the mail or through fax services, it may take longer to receive an EIN. It’s important for an EIN to be acquired early on in the business organization process. Without an EIN, an organization can’t do things like open bank accounts.

Applying for an EIN is a fairly easy process, but it’s best done through a third-party service that can handle the organizing of the business as well as all of the tax IDs that are needed. An EIN isn’t the only tax ID needed; state tax IDs are also often required.

5. What Is the Difference Between a Tax ID and an EIN?

A Tax ID is the same as an EIN. They have different names because they are used in different ways, but it’s the same identifying information. An EIN may be referenced on W2 and 1099 forms as an Employer Identification Number, whereas an EIN may be referenced as a Tax ID when filling out state tax forms and federal tax forms.

An EIN may also be referred to simply as an EIN or may be referred to as a federal identification number. The company may, however, have separate state ID numbers that are used to identify it on a state level as well as a federal level.

Getting an EIN is one of the first and most important steps to initially launching a business. A third-party service dedicated to helping form LLCs and other companies can help you get an EIN easily.