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What is an employee identification number (EIN)?
An Employer Identification Number (EIN) is a nine-digit number used by the Internal Revenue Service (IRS) to identify businesses and certain other entities. It’s also sometimes called a Federal Taxpayer Identification Number or Federal Employer Identification Number (FEIN). Business owners use an EIN to conduct activities that would otherwise require a Social Security number (SSN). Who needs an EINThe guidelines used by the IRS for determining if an EIN is required suggest that most businesses must have an EIN. Besides, acquiring an EIN is an important step to establishing your business and will help you keep your legal and financial matters in order. As soon as you launch your business, you’ll need to apply for an EIN . You can wait until you’ve registered your company in the state where you plan to do business, but you’ll need an EIN before you can open a business bank account. According to the IRS, your business must have an EIN if:
Or if you’re involved with any of the following:
Beyond filing taxes, you may also need an EIN to:
Another reason you may need to apply for an EIN is for your privacy. For example, if you’re a contractor who works with a large number of clients, disclosing your Social Security number may expose you to identity theft. Instead, apply for an EIN. Doing so won’t eliminate your chances of falling victim to identity theft, of course, but it will likely keep the thief from accessing your personal accounts. Benefits of an EINAs we can see, an EIN isn’t always necessary for everyone but does have its benefits for some. This includes:
How to get an EINDon’t be fooled by online services that charge you to apply for an EIN. The IRS allows you to apply for free on its website, where it devotes an entire page to EIN application procedures and allows you to get employer ID numbers through EIN online. The application process is relatively easy, and very few applicants need expert help to complete the form. In most cases, if you apply online Monday through Friday between 7 AM and 10 PM. local time, you’ll receive your EIN immediately. You may also apply by fax or mail with Form SS-4. Here’s a summary of what to expect when filing:
There is certain information you will need to complete the EIN application, such as:
How to find your EINAccording to IRS.gov, you can locate your EIN by:
Common EIN considerationsThere are some additional factors to consider when entertaining the idea of acquiring an employee identification number. Some of them include:
What is a ‘responsible party” on your EIN application?The Employer ID Number (EIN) application (Form SS-4) will ask you do identify a “responsible party” for your business. Over the years, there’s been some confusion on the part of business owners regarding the term ‘responsible party.’ Because of that confusion, the IRS issued a clarification. Now, on the EIN application, instead of asking the applicant to identify the general partner, principal officer, grantor, owner or trustor, it simply asks for the identity of the “responsible party.” Evidently, the IRS wants to be sure that they are talking with the person responsible for the company and that the person responsible signs the application. What if you make a mistake when applying for an EIN?Mistakes happen. If and when they do, you will have to submit a letter — preferably on your company letterhead — to the IRS. You’ll need to include your name as the responsible party, your business name, and fill them in on the error. It also would benefit you to include the EIN confirmation notice you received. You can’t call or go online to make changes, and you don’t want to submit a new EIN application (Form SS-4). That will only cause confusion at the IRS. Can you cancel your EIN?The short answer is no. Once an EIN is assigned to a business, it forever belongs to the registered business. Even if the number is never used to file a federal tax return, it cannot be reassigned to another business, according to the IRS website. An EIN can also never be canceled, but the IRS will close the account upon request. The responsible party may reopen the account later by writing to the IRS. Closing the account works similarly to having a mistake rectified — you need to send a letter. The letter should include:
Send the letter to this address: Internal Revenue Service EO Entity Mail Stop 6273 Ogden, UT 84201 Will you ever need to change or get a new EIN?
If you make common changes to your business, like changing the name or address of your business, you won’t need a new EIN. But the IRS states that if the ownership or structure of your business changes, you will need to apply for a new EIN. If you change your EIN, you’ll also need to update the information in your business software. Check out how to change your business name, contact info, or EIN in QuickBooks Online. Based on your business structure, here are a few instances when you’ll need to get a new EIN. Sole proprietorshipsIf you run a sole proprietorship, you will need to change or apply for a new EIN if you incorporate or acquire partners, if you’re the subject of a bankruptcy, or if you inherit or purchase an existing business that you plan to run as a sole proprietorship. PartnershipsFor a partnership, you will need a new EIN if you incorporate, if you have a partnership that is acquired by one of the partners and will now be run as a sole proprietorship, or if you end one partnership and begin a new one. CorporationsIf your company is a corporation, you’ll need to change or apply for a new EIN if your corporation is issued a new charter by the secretary of state, if you change the structure of your business to a partnership or a sole proprietorship, if you are or become a subsidiary of a corporation using the parent company’s EIN number, or if you change your business structure and a new corporation is created after a statutory merger. Limited liability companiesFor a limited liability company (LLC), you will apply for a new EIN or change an existing EIN if you create a new multi-member LLC under state law, if a new single member LLC is created under state law and files as a corporation, or if you create a new single-member LLC that is required to file excise taxes. Estates and trustsThe same applies for both estates and trusts. You will need to change or apply for a new EIN number if you form a trust using funds from the estate (not just an extension of the estate), or if you are a representative of an estate that is run as a business following the death of its owner. For trusts, if there is a change in the identity of the trustee or if the beneficiary or grantor changes his or her name or address you will have to apply for a new EIN. When you don’t need a new EINAccording to the IRS, you do not need to apply for a new EIN if:
Employer Identification Number FAQWhile we did cover the main points of the Employer Identification Number, there are a few commonly asked questions that we found would be helpful to cover. Is an EIN free?An Employer Identification Number is most certainly free, and you should be wary of any service that says otherwise. You can apply for free by going to EIN application procedures where an online EIN application is provided. Is an EIN the same as a tax ID number?An Employer Identification Number (EIN) is different from a Tax Identification Number (TIN). The main difference is that the EIN identifies a company while the TIN identifies an individual. Is an EIN the same as a Social Security number?A Social Security number is different from an EIN. A Social Security number is used by the government to track an individual’s lifetime earnings and the number of years worked. Is an EIN a public record?An Employer Identification Number is indeed a public record and can be searched on the U.S. Securities and Exchange Commission’s EDGAR system. Start your business off right with an EINA company’s EIN is unique to that business. It’s used to file your business’s tax return and pay your employees, and most banks or credit unions won’t open a business account until they have an EIN. The nine-digit number never expires, and it will never be reissued to another business. No other business will ever have your EIN assigned to them even if you decide to close your business. An EIN helps protect your business’s identity in the same way your Social Security number helps protect your identity. The online application process is fairly easy, so you can register your business for an EIN today. Plus, with accounting software such asQuickBooks you can use your new EIN to be added to functions like payroll for easier access and use. Recommended for youLooking for something else?Get QuickBooksSmart features made for your business. We've got you covered. Firm of the FutureExpert advice and resources for today’s accounting professionals. QuickBooks SupportGet help with QuickBooks. Find articles, video tutorials, and more. |