The acronym EIN is short for Employee Identification Number. In a nutshell, an EIN identifies your business to the IRS. It’s sort of like a Social Security number for your business.
If you have and use an EIN, you probably use it to file your business taxes, to make tax payments, and you’ll need it to get tax-exempt status if you qualify for that. You’ll also need it to hire employees, get a business bank account, or to take any loans in your business’ name.
In What Cases Does My Business Need An EIN?
There are certain types of businesses that are required to have an EIN and other types of businesses that are not. In some cases, you can use the business owner’s Social Security number when you conduct business transactions and file taxes; in other cases you need to have an EIN.
Related Article: 15 Valuable Small Business Tax Deductions
Some of the cases in which you are required to have an EIN for your business are listed below.
If You’re A C-Corp, S-Corp, LLC, Or A Partnership
You will need an EIN if your business is defined as a C-Corp, an S-Corp, an LLC, or a partnership of any kind. Even if your S-corp only has you as an employee, you’ll still need to have an EIN to run your business.
Note that there is an exception to this rule, and that exception applies when it comes to Single-Member LLCs. Businesses that are listed as Single-Member LLC (SMLLC) businesses don’t have to have an EIN unless they’re paying excise taxes or paying other employees.
Is your business a non-profit organization? You’ll need an EIN if you’re operating as a non-profit organization too.
You Need AN EIN If You Have Employees
In addition to needing an EIN if you are designated as one of the business entities listed above, you do need an EIN if you have any employees for your business.
Contractors that work for you and get a 1099 at the end of the year don’t count as employees. However, if you’ve got W-2 employees, then you need to have an EIN. This rule applies even if you’re an S-Corp with only yourself listed as an employee.
Other situations call for your business to have an EIN as well.
Other Situations That Require You To Have An EIN
Some of the other instances in which your business must have an EIN include:
- You file taxes such as alcohol, firearm, or tobacco taxes
- You’re withholding taxes for an employee who is a non-resident alien
When your business needs to pay excise taxes in any form, you’ll need to have an EIN to do so. Another instance in which you may need an EIN is if you open a business bank account under your business name.
Your bank may let you open an account under your business name if you operate as a sole proprietorship. However, many banks do require those wanting to open a business checking account under a business name to have an EIN.
Having an EIN can be especially helpful if you’re applying for a loan under your business entity — particularly if you’re running a sole proprietorship.
Putting any business loans under your company’s EIN instead of your personal Social Security number can help your business gain a good credit rating on its own, too.
Also, if you’re applying for a license for your business, such as a food or liquor license, you’ll need an EIN as well. This is often a state requirement your business will need to comply with.
Does My Sole Proprietorship Need An EIN?
In many cases, a sole proprietorship business does not need an EIN. Sole proprietorships can often operate and file taxes under the owner’s social security number.
That being said, there are some instances in which your sole proprietorship business will need to have an EIN. For instance, you’ll need to get an EIN if you buy or inherit a sole proprietorship from someone else.
And you’ll also need an EIN if you’re buying an existing business that you intend to operate as a sole proprietorship.
In addition, you will need an EIN for your sole proprietorship if that sole proprietorship has any employees whatsoever.
Sole proprietorships need an EIN if they are going to offer any type of tax-advantaged retirement accounts as well. For instance, let’s say your sole proprietorship is offering a Keogh plan.
Related: 7 Best Small Business Retirement Plans
Or, let’s say you’ve opened up a solo 401k for your sole proprietorship. In those instances you will need to have an EIN for your sole proprietorship business.
You’ll also need an EIN for your sole proprietorship if:
- You take on a partner and change your business from a sole proprietorship to a partnership
- You incorporate your sole proprietorship
This IRS web page expands on this subject and will help you determine other instances in which you’ll need an EIN for your sole proprietorship.
Let’s talk next about whether or not there is ever a reason to get a new EIN for businesses that have an existing EIN.
Do I Ever Need To File For A New EIN?
There are some cases in which you’ll need to file for a new EIN — even if you’ve already got one. For instance, you may need to file for a new EIN if you are changing your business type.
Let’s say you’re changing your existing business type from an LLC or partnership to a C-corp or S-corp. In that case, you’ll need to file for a new EIN.
Another case in which you may need to file for a new EIN when you’ve already got one is if you’re taking on a new business partner. Taking on a business partner often changes the business to a different business in the eyes of the IRS, and so you may need to file for a new EIN.
Talk to your tax accountant or visit the IRS website for more details on whether it’s necessary to get a new EIN in exchange for an existing one.
When Do I Not Need To File For A New EIN?
We’ve talked about some instances when you likely will need to file for a new EIN. So when do you not need to file for a new EIN?
You will not need to file for a new EIN if you change only the name of your business. In other words, if all other information for your business stays the same (type of business, business ownership, etc.) you will not need a new EIN.
In addition, you will not need to file for a new EIN if you change your business location. This same rule applies if you are adding more locations to your business.
There is a separate form for changing addresses for your business: Form 8822-B.
Also, you won’t need to get a new EIN if your corporation or partnership declares bankruptcy; you’ll just use the one you have.
Now that you know most all of the reasons you’ll need an EIN for your business (and when you won’t), let’s talk about why it might be a good idea to get an EIN for your business even if you don’t need one.
Advantages Of Having An EIN Even If You Don’t Need One
Even if you don’t need an EIN for your business, it might be a good idea to get one. There are a couple of reasons why you might want an EIN for your business.
First, having an EIN for your business helps keep your personal Social Security number off of most business documents. Keeping your Social Security number off of most business documents can lower your risk of being a victim of identity theft.
Second, having an EIN for your business can help you keep business and personal financials separate. Having your business and personal finances completely separate can help you manage your personal and business finances more effectively.
Something else to consider: We talked above about needing an EIN for your sole proprietorship if you have any employees for that sole proprietorship.
You may have no intention of hiring employees at this stage in your business. But that doesn’t mean you won’t hire employees in the future.
Your business may grow sooner than you expect it to and you may need to hire employees earlier than you had planned to. For that reason, you may want to get an EIN now so that you’ll have one less step to complete if you end up hiring employees sooner than you had planned to.
Finally, having an EIN establishes credibility for your business. Establishing credibility for your business can be especially important for sole proprietors and independent contractors since these types of businesses are most often the ones associated with attempted fraud.
If you’ve decided that you do want or need an EIN for your business, here’s how to go about getting one.
Related Article: Year-End Checklist For Small Businesses
How To Apply For An EIN
Applying for an EIN is easy and free. Start here.
Note that it’s free to apply for an EIN through the Internal Revenue Service (IRS) website. This is important to know because there are some companies out there that will charge you to file for an EIN on your behalf.
You don’t need to pay anyone to do that for you. Just go to the IRS website page that shows you how to file for an EIN. You can apply by snail mail, by fax, or by using the online system.
Applying online for an EIN is easy and fast; you can get your EIN as soon as you’re done with the application. However, you do need to apply during normal business hours of 7 a.m. to 10 p.m. (EST) Monday through Friday in order to use the online system.
What Information Do I Need To File For An EIN?
When you visit the IRS’s online system to file for an EIN, be sure to have the following pieces of information available:
- The legal name of the business
- The type of entity requesting the EIN
- Name of the state in which the company is operating in
- Name(s) of the person authorized to act on the business’ behalf regarding the EIN request
- The mailing addresses of the business and person authorized to request the EIN
- The number of employees you expect to have within the next 12 months
- When you first paid wages to your employees
- What your closing date is for your business year (i.e. fiscal date or year-end calendar date)
- The reason for the EIN request
The IRS may ask you for more information as well when you apply for an EIN for your business. For that reason, be sure to have all business information within reach before you call.
After you finish answering all required questions for obtaining an EIN for your business, you’ll get your EIN right away in most cases. If there is missing information or some other information the IRS system needs to process your request, there may be a delay in receiving an EIN for your business.
Rest assured the IRS customer service center will handle any exceptions promptly.
Summary
Having an EIN for your business isn’t always necessary. However, an EIN can be a valuable asset when it comes to keeping your business and personal finances separate.
