Employer Identification Number
EIN – an Employer Identification Number (also known as a Federal Tax Identification Number) is being used to identify a business entity. In general, businesses need an EIN – a unique identification number that is assigned to them so that the Internal Revenue Service (IRS) can easily identify them. The EIN is a nine-digit number, and its function is similar to that of the Social Security Number.
The number includes information about which state the corporation is registered in. The digits of an EIN are arranged as follows: XX-XXXXXXX. Businesses that have altered their ownership structure typically must apply for a new EIN.
Why is EIN needed?
The IRS uses EINs to identify businesses for tax purposes. Additionally, businesses use their EIN to open business checking accounts, apply for business licenses, and establish accounts with vendors. Some types of business that do not need an EIN, such as sole proprietors, choose to get the ID from the IRS anyway.
Some independent contractors (a type of sole proprietor) use an Employer Identification Number rather than their Social Security Number to safeguard against identity theft. Sole proprietors also sometimes use an EIN to show their status as an independent contractor rather than an employee.
Who needs an EIN?
According to the IRS, the business must have an EIN if it meets any of these criteria:
- It has employees.
- It operates as a corporation or partnership.
- It withholds taxes on income other than wages paid to a non-resident alien.
- It has a Keogh Plan.
- It is involved with certain organizations listed on the IRS website.
If you are a business owner, then you may also need an EIN to:
- Open a bank account in the name of your business.
- Apply for a credit card in the name of your business.
- Apply for business permits.
- Furnish independent contractors a Form 1099.
How one applies for an EIN?
It is a fairly easy process to apply for an EIN as:
- You can choose to apply for an EIN either over a phone, online or by mail.
- When applying online, there is only one simple form to be completed.
- If you did not apply for an EIN online, you can still verify your EIN online.