An employee identification number (EIN) is basically a social security number for your company, providing it with identification for taxation and financial reporting. It is an important feature to have for your business, however it is not always required like a SSN.
Do I need an EIN?
Depending on what your business does, you may be required to have one. If any of the following are applicable to your business, then you will be required to have an EIN:
- The business structure is a corporation or a partnership
- You have, or plan to have, employees
- On your tax return you filed a firearm, alcohol, and tobacco, or excise tax
- Holding back taxes on wages for individuals that are not nonresident aliens
- You work with non-profits, farmer co-ops, real estate mortgage investment conduits, plan administrators, estates, or trusts
There are certain actions that require an EIN even though they do not directly interact with your financial reporting to the IRS. Included in this is:
- Applying for a credit card / credit line in your business’s name
- Opening a bank account in your business’s name
- Receiving a business permit
- Filing certain forms to the IRS, such as a 1099
An EIN is also important for the privacy of your business, because your personal social security number will be on financial documents that anyone you work with will have access to.
Applying for an EIN
An accountant will be able to handle this process of obtaining an EIN for you, however you can still receive one without an accountant. The most efficient way is to go through the website for the IRS. There are other websites that will also allow for you to apply for an EIN, however the IRS will be the easiest.
The online application will allow for an instant EIN. If you decide to go by mail, the response will take up to 14 days. Once you have the number you can use it immediately.
EINs require a social security number to be attached to it; so one person will have to be responsible for it if multiple parties are involved. It is important to keep in mind that this is like a social security number, so keep it safe. Remember where you keep it and maintain its privacy.
Is there a Cancellation Policy?
You cannot cancel an EIN, regardless of whether or not you have filed taxes with it. The number will always be associated with whichever business it is applied to, and cannot be changed. If the business is no longer in existence then you can request the IRS to cancel the EIN.
Having an EIN is in your best interest, and it is better to apply sooner rather than later. Your business’s legitimacy will increase, and whomever your business interacts with will take note of it. If you have any questions, reach out to an attorney to help you along the way.