Does Your Business Need an Employer ID Number?

If you’re setting up a business, odds are, you need an Employer ID Number — often abbreviated as “EIN” or also called a “federal tax identification number.”

But what is an EIN? And do you always need one?

According to the IRS, an EIN is “used to identify a business entity.” There are several ways you can use your EIN, and you can usually apply for one online.

The IRS also has a checklist to help you determine whether or not you need an EIN. Take a look at the following list of questions. If you answer “yes” to any of them, your business needs an EIN:

• Do you have employees?
• Do you operate your business as a corporation or a partnership?
• Do you file any of these tax returns: Employment, Excise, or Alcohol, Tobacco, and Firearms?
• Do you withhold taxes on income, other than wages, paid to a non-resident alien?
• Do you have a Keogh plan? (Those are retirement plans for the self-employed.)
• Are you involved with any of the following types of organizations?
• Trusts, except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns
• Estates
• Real-estate mortgage investment conduits
• Nonprofit organizations
• Farmers’ cooperatives
• Plan administrators

So, when would your business not need an EIN?

It usually depends on your business’s entity type. For example, sole proprietorships and single-member LLCs without employees are what’s known as “disregarded entities.” (A disregarded entity is when there’s one owner that’s not recognized for tax purposes as an entity that’s separate from its owner.) If your business is an LLC, you can use your Social Security number for tax purposes.

But if your sole proprietorship or single-member LLC hires one or more employees, then you need an EIN. That’s also true if your LLC opts to be taxed as a C or S corp. Your state might also require single-member LLCs to get an EIN to file taxes.

Even if your business isn’t required to have an EIN, it’s not a bad idea to get one. EIN’s aren’t tied to as much personal information — bank accounts, credit cards, etc. — like your Social Security number.

There also might come a point where your existing business would need a new EIN. For example, if your business has had a change in structure or there’s been a change in ownership. The IRS has a pretty extensive list of reasons it might be time for a new EIN.

Whether you have a new or existing business, there are various ways you can apply for an EIN: online, by mail, or by fax. Applying online is the fastest, since you’ll get your number right away.

If you have questions about your EIN or other tax considerations for your business, please let us know. We’re always happy to help.