An employer ID number. commonly known as an EIN, serves as an identifier for federal tax purposes. Think of it as a Social Security number for your business entity. Most businesses need an EIN, but some may not.
Your business made need an EIN for a variety of tax-related purposes, and you may need a new EIN if certain events happen in your business.
What is an EIN Used for?
Your business must have an EIN if:
- You have employees
- You are operating your business as a corporation or partnership
- You have a limited liability company (LLC) taxed as a corporation or S corporation
- You file an employment tax return, excise tax return, or alcohol, tobacco and firearms return
- You withhold taxes on income paid to a non-resident alien
- You have a Keogh plan
Types of organizations that must have an EIN include:
- Trusts (except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business tax returns)
- Real estate mortgage investment conduits
- Non-profit organizations
- Farmers' cooperatives
- Plan Administrators
Other Reasons Why You Might Need an EIN
Even if your business doesn't need an EIN for federal tax reasons, you may still be required to get an EIN for several other types of situations:
- Opening a business bank account
- Applying for business licenses
- 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
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.
Your sole proprietorship will need an EIN if:
- You are subject to a bankruptcy proceeding
- You change your business to a corporation
- You take on partners and form a partnership
- You change your business to a multiple-member LLC
- You change your LLC to be taxed as a corporation or S corporation
- You buy or inherit an existing business that you operate as a sole proprietorship
A single-member LLC is a special case when it comes to EINs. It's considered a disregarded entity. Your SMLLC doesn't need an EIN (you can use your Social Security Number) unless you pay employees or excise taxes.
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.
When NOT to Apply for a New EIN
If you already have an EIN and your business changes, that doesn't mean you automatically need 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
Other Times You Need a New EIN
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 other times when you will need to get a new EIN.
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.
An LLC entity is always a special case when it comes to federal taxes. An LLC 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.
How to Apply for an EIN Number
IRS Changes EIN Application Process to Increase Security
Effective May 13, 2019, the IRS requires individuals applying for an EIN to have a Social Security Number or ITIN for the responsible party on the form.