Why Your Business Needs an Employer ID Number (EIN)
Most Businesses Need One
An employer ID number, commonly known as an EIN number, serves as an identifier for business tax purposes. Think of it as a Social Security number for your business entity. Most businesses need an EIN, but some may not.
How Soon Must I Apply for an EIN Number For My Business?
You'll probably need an EIN number immediately, as soon as you start your business. You can wait until you have applied for your business registration with your state, but you'll need the EIN to open a business bank account.
What is an EIN Number Used for?
- Opening a business bank account
- Applying for business licenses
- Filing tax reports -- an EIN is required on all federal income tax forms and federal payroll/employment tax forms
- Filing electronic tax returns and payments -- most federal tax payments must be made electronically using the federal tax filing system (EFTPS), and an EIN serves as the identifier on all tax returns
- Filing state taxes -- you may also need a state EIN in some states
Why Your Business Might Need an EIN Number
According to the IRS, your business requires an EIN under any of the following circumstances:
- You have employees
- Your business is taxed as a C corporation, partnership or limited liability company
- You file employment taxes, excise taxes, or alcohol, tobacco, or firearm tax returns
- You withhold taxes on income paid to a non-resident alien
- Your business has a Keogh plan
- Your business is involved with trusts, estates, real estate mortgage investment conduits, non-profit organizations, farmers' cooperatives or employee plans
Even if your business doesn't fall into any of the above categories, you may still be required to get an EIN if you want to open a business checking account or apply for a loan from a bank or through the Small Business Administration.
Does a Sole Proprietor Need an EIN Number?
If you are forming a sole proprietorship and you have no employees, you may not need an EIN. You will be filing your business income taxes with your personal tax return, so you can use your Social Security number as your business taxpayer ID.
Do I Need an EIN Number for a Qualified Joint Venture?
A qualified joint venture is a specific type of husband/wife business. In general, spouses don't need EIN numbers because they're treated as sole proprietors for federal tax purposes. If you already have a husband-wife partnership with an EIN, retain the partnership EIN in case you lose your qualified joint venture status.
Review the IRS checklist for more details on the circumstances in which you need an EIN for your business.
When NOT to Apply for a New EIN
The IRS says you should NOT apply for a new EIN if:
- You change the name of your business
- Your partnership or corporation declares bankruptcy
- Your corporation elects to be taxed as an S corporation
- You elected on Form 8832 Entity Classification Election to change the way your business entity is taxed
- You change the location of your business or add locations -- use Form 8822, Change of Address, instead
When Do I Need to Change My Employer ID Number?
If you make typical changes to your business, like a change of business name or address, you don't need a new EIN. But there are some times when you will need to get a new EIN.
In general, if you change your business type (from a sole proprietorship to a partnership or a partnership to a corporation), you will need a new EIN.
If your business is a sole proprietorship, you will a new EIN if you are subject to a bankruptcy or if you buy or inherit an existing business that you operate as a sole proprietorship.
If your business is a corporation, you will need a new EIN if your corporation receives a new charter from your state or if a new corporation is created after a merger. Also, a new EIN is necessary if you are a subsidiary of a corporation using the parent's EIN or you become a subsidiary of a corporation.
If your business is a partnership, you will need a new EIN if you end one partnership and create another new one or if your partnership is taken over by one of the partners and is operated as a sole proprietorship.
Remember that an LLC entity is taxed either as a sole proprietorship (if it's a one-owner LLC) or a partnership (with multiple owners). The rules on needing a new EIN apply to these business types.