updated September 1, 2023 · 4min read
An Employer Identification Number (EIN) is mandatory for some businesses and optional for others. But in general, an EIN is necessary for independent contractors and small business owners. Understanding who needs to apply and the benefits that come with having an EIN can give your business a real advantage.
An EIN is an exclusive nine-digit number assigned to your business by the Internal Revenue Service and identifies your business for tax purposes. It's like your Social Security Number, except it's designed for businesses only. It's necessary for paying employees and managing your business taxes. EINs are issued by the state and used on state tax forms.
Related: How to Close an LLC
The following business structures are required to have EINs:
Sole proprietorships, in general, are not required to have an EIN. However, an EIN is required if:
The IRS also requires EINs for trusts created by estate funds and representatives who oversee an estate that operates a business after the owner's death.
Independent contractors, freelancers, people running small businesses out of their homes, and people with side jobs who capitalize on the gig economy are generally not required to get an EIN. Still, there are plenty of reasons why they should.
When the IRS mandates an EIN, you don't have a choice. But here's a key reason why it's a good idea to use an EIN for business even when it's not required: avoiding identity theft.
In some ways, an EIN is one of the best-kept secrets in the business world. Surprisingly, applying for one isn't on every entrepreneur's to-do list. An EIN makes it easier to:
A FEIN is a Federal Employee Identification Number. It serves the same purpose as an EIN, except the federal government issues it instead of the state. A FEIN also allows you to enroll in the electronic federal tax payment system, where you can easily make tax payments over the phone or online.
Here's the good news. Applying for an EIN is easy and free. Establish your business type prior to requesting an EIN. For example, if you plan to operate your new business as an LLC, create the LLC prior to applying for an EIN. You can apply online on the IRS's website, or you can use an independent service to complete the process for you. You can apply online, by fax, or by mail with the IRS. If you apply by fax or mail, you will need to complete the Form SS-4, Application for Employer Identification Number. When you apply online, you will be able to view and print your assigned EIN at the end of the online session. Via fax, the process is generally complete within four business days. Via mail, you can expect a wait time of approximately four weeks.
Note that:
Now that you can see the advantages and ease of obtaining an EIN, acquiring an EIN should be one of the first steps you take when creating a new business.
by Boni Peluso
Boni Peluso is an award-winning Creative Director and Content Strategist who has written extensively for the legal, h...
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