IRS issues the tax identification numbers for taxpayers and businesses, or entities, to operate smoothly in the US and get a financial identity. The administration of taxes and other corporate processes depends on the tax ID number.
If you are a business owner or are responsible for any organization, then you will need to get an EIN (Employer Identification Number). The article covers everything you wish to know about EIN, from its requirements to its application.
What is an EIN Number?
IRS issues a nine-digit number to identify the employer’s tax accounts and others that have no employees. This unique nine-digit number is called the Federal Employer Identification Number (FEIN) or Employer Identification Number (EIN).
The main purpose of this number is to report business tax and others; however, it cannot be used in lotteries, tax lien auctions, or sales and other intentions not related to tax administration. It was initiated in 2012 to ensure transparency and equal treatment of taxpayers.
The EIN format XX-XXXXXXX and the codes tell about the state your legal entity is registered in, and other information. Many businesses wonder if they will need to obtain the EIN or not, if they do not need it legally due to small-scale business; however, you should know it’s beneficial to get one.
When will you require an EIN?
If you are wondering why you will need an EIN, if your business does not have any tax liability, you should check the following requirements of an EIN:
- If you intend to hire staff for your company, you will require an EIN.
- You have to file a 401(k) retirement plan and other self-employed retirement plans to build your employees’ or your retirement income.
- You have to file excise, tobacco, employment, alcohol, and firearms taxes
- You have taken over a business or inherited an estate
- You have to pay state taxes, or wish to open a bank account.
- You will require an EIN to manage and administer any of the following entities:
- Corporation
- LLC (Limited Liability Company)
- Partnership or sole proprietorship
- Estate
- Tax-Exempt Organization
- Trust (except particular grantor-owned revocable trusts)
- Real Estate Mortgage
- Retirement Plans
- Farmer’s Cooperative
How is it different from other Tax ID numbers?
EIN is for businesses and entities for their financial identity; however, there are other tax identification numbers as well, such as ITIN (Individual Taxpayer Identification number), SSN (Social Security number), ATIN (TIN for Pending US adoptions, and PTIN (Preparer tax identification number).
Usually, people get confused between ITIN, SSN, and EIN, so let’s see how you can differentiate between them:
- EIN is for businesses in the US, whereas ITIN is for individual taxpayers, and SSN is for US citizens and permanent residents.
- The IRS issues the EIN and ITIN, whereas the Social Security Administration issues the SSN.
- The EIN and ITIN have a tax purpose, while the SSN is required for employment, earnings tracking, determining eligibility for social security benefits, and tracking your earnings.
- SSN is one of the sensitive information that can be used as a business ID, for instance, for a sole proprietorship. So, the government always encourages people to safeguard their SSN information, while EIN is not considered as sensitive information and it is freely distributed in the business world to authenticate the business legal entity.
Does EIN expire or get canceled?
EIN never expires; once it is issued, you can never reissue it. However, if you have no use for the EIN, you can cancel or deactivate it. You can get a new one and cancel your current one for the following specific reasons:
- Purchase another business
- Became a subsidiary of another business
- Subject to bankruptcy
- Changes business model and ownership
- You establish a new corporation
Remember, it depends on your legal entity type, whether you will need a new EIN based on the situation; you can find the reason for each entity here.
What are the application processes for the EIN?
Now that you know the importance of the EIN and wish to obtain it for your legal entity, you can apply for it through multiple methods. You would need the responsible party controlling the business in the US, SSN or ITIN, or legal entity type and registration in the US state where the business is located.
Here are the EIN application multiple methods that you can try and obtain the tax ID number for your business:
- Online IRS tool: The IRS has an EIN Assistant online tool to apply for the tax ID in a few minutes and get it online in a few minutes. The service is free and directly available on the IRS website.
- Mail: Download and print the EIN application form SS-4 from here and post the filled form to the EIN Operation, Cincinnati, OH 45999.
- FAX: Fax the filled SS-4 form to the number 855-641-6935.
- International applicants can apply by mail (EIN International Operations, Cincinnati, OH 45999), phone (267-841-1099), or fax (855-215-1627 or 304-707-9471 outside the US) as the IRS EIN Assistant tool is not available for you.
EIN can be obtained by the responsible party, the business owner, executor (estate), but never by the nominee. It is issued once only, so apply carefully, keeping all the rules in mind.
