EIN (Employer Identification Number)
All businesses that have employees need an EIN. However, that does not mean that if you do not have any employees you do not need one. On the contrary, you need an EIN for a number of different reasons which I will detail below but let’s just start by understanding that an EIN is like a Social Security Number (SSN) for businesses. Yes, it is THAT important.
If you are planning on starting a business then it is best that you get an EIN. So that even though you might not have any employees you will still have the EIN handy for whenever a circumstance presents itself for you to provide one.
WHAT IS THE EIN?
As explained earlier, an EIN works as a SSN for businesses. The Internal Revenue Service (IRS) provides businesses with a number to identify them for tax purposes. When you go to a bank to open up an account for your business you will need to fill in an EIN on the application, you will need it for employment tax reports, income tax forms, tax returns.
TYPES OF TAXPAYER IDs AND THEIR DIFFERENCES
Quite a few terms are used interchangeably with the EIN, namely; Employer ID, Taxpayer ID, or tax ID. There is, however, a difference between them all. The IRS has distinct definitions for each. All the terms come under the umbrella “TAXPAYER ID”. The EIN is a taxpayer ID for companies/businesses/organizations where as an individual has a taxpayer ID known as Social Security Number.
Another taxpayer ID is the Individual Taxpayer Identification Number (ITIN) which is a tax processing number for all individuals who need a tax ID but are not eligible to get a Social Security Number – mostly the Non Resident Aliens.
REASONS TO GET AN EIN:
All businesses need the EIN at some point or the other for different reasons even if they do not have employees. Your business will also need an EIN if it is taxed as a partnership or corporation. Listed below are some of the main reasons you will need to get your business an EIN:
– If you file tax returns for excise tax, employment tax, and tobacco, firearm and alcohol.
– If you have a Keough Plan – a retirement plan for people who are self-employed
– If your withhold taxes on income paid to a non-resident alien (does not apply to wages)
You may not need to get an EIN for tax purposes if your business is a Sole Proprietorship and do not have any employees, as in this case your SSN will be your EIN. But like stated earlier you will be required to provide it when you apply for a business license and open up a business checking account.
BEFORE APPLYING FOR AN EIN:
Sort of a prerequisite to applying for an EIN is to designate a party (individual(s) not business) responsible for your business. This is on SS-4 form which you need to complete and use it to apply for the EIN. It smoothens the process of application.
REASONS YOU NEED A NEW EIN:
You will need a new EIN for your business if:
- You change your business type
- A new corporation is made after a merger
- You become the subsidiary of a corporation
- You purchase an existing business that you operate as a sole proprietor
- Your business is a subsidiary of a corporation using the parent company’s EIN
Lastly, an EIN you get belongs to you and you alone! You can not pass it on to another company. It cannot be assigned to another company in the case your company is dissolved or ceases to do business for any reason. When you are finished using an EIN it is gone forever.