When and How to Use Your EIN: Practical Tips for Businesses

One of the most crucial tools in your entrepreneurial toolkit is your Employer Identification Number (EIN).

Often viewed as just another piece of red tape, your EIN is a powerful asset that can open doors to new possibilities. But when and how do you use it effectively? 

In this blog post, we’ll break down everything you need to know about your EIN—from the best times to utilize it to practical tips for navigating the world of business finances.

Whether you’re launching a startup or streamlining business finances, understanding your EIN can set you on the path toward success! 

So, let’s dive in and demystify this essential element of business ownership!

What Is an EIN, and Why Do You Need One?

An EIN is a unique nine-digit number the Internal Revenue Service (IRS) assigns businesses. It serves as a form of identification for tax purposes and is often referred to as a business’s social security number.

So why do you need an EIN? First and foremost, it is required for any business that has employees.

This includes traditional full-time employees, part-time workers, independent contractors, and even household employees if you run your business from home. 

Having an EIN allows the IRS to track your business’s tax obligations and ensure that all necessary taxes are being paid. Even if your company has no employees, there are several other situations in which you may still need an EIN. 

For example, each partner or shareholder will need their tax identification number (such as a Social Security Number) in a partnership or corporation. Still, the partnership or corporation will also be required to have an EIN.

Some businesses are required to have an EIN to file certain tax returns.

For example, if your company sells alcohol or tobacco products, you will need an EIN. Many banks also require businesses to have an EIN to open a business bank account. This helps them track your finances and ensure all transactions are correctly reported for tax purposes.

Having an EIN can also provide additional benefits for your business. For one, it helps establish credibility with vendors and clients who want reassurance that they are working with a legitimate company.

Additionally, it can help protect against identity theft since using an EIN instead of your personal social security number reduces the risk of exposing sensitive information.

When Is an EIN Required?

One of the most common instances when an EIN is required is when starting a new business. Any business entity that plans to hire employees or operates as a partnership or corporation must have an EIN. 

This includes sole proprietorships with employees, limited liability companies (LLCs), S-corporations, and C-corporations. Any business entity that withholds taxes on income paid to non-resident aliens must also have an EIN.

Another situation where an EIN is required is when applying for certain licenses and permits.

Many state and local governments require businesses to provide their EIN when obtaining these documents, including liquor licenses, sales tax permits, and other professional or occupational licenses.

If your business has changed its legal structure, you must apply for a new EIN. For example, if you were a sole proprietor but formed an LLC or incorporated your business, you must obtain a new EIN under the new structure.

Even if your business does not fall into one of these categories, obtaining an EIN may still be beneficial.

For example, sole proprietorships without employees are not legally required to have an EIN unless they file excise taxes (such as alcohol or tobacco sales). While they can use their Social Security number (SSN), obtaining an EIN can still be safer and more beneficial for tax purposes.

How to Use Your EIN Effectively

Using your EIN effectively is crucial for your business’s smooth operation and legal compliance. By following these tips and staying organized with your finances and tax filings, you can ensure that your EIN serves its purpose efficiently.

Remember always to stay informed about any changes or updates from the IRS regarding EIN usage guidelines.

1. Filing Taxes with Your EIN

An EIN ensures that the IRS correctly identifies and processes your tax return. Another benefit of having an EIN when filing taxes is that it allows for electronic filing through IRS e-file. This method can save time and reduce errors compared to paper filing.

Additionally, e-filing can speed up processing times for refunds or payments owed.

It’s also worth noting that even if you do not have any employees, you may still be required to file employment tax returns if you are a business owner with an EIN.

This includes filing Form 941 or Form 944 for income and social security taxes withheld from employee wages and paying your share of these taxes.

2. Getting Business Credit

A well-utilized EIN can also help establish credit for your business. Like individuals’ credit scores, companies also have credit ratings that determine their ability to obtain loans or credit from financial institutions.

By using your EIN consistently when applying for loans or lines of credit, you can build a strong credit history for your business.

3. Paying Employees

If your business has employees, you must pay them wages and withhold taxes on their behalf. However, you need to obtain an EIN to set up payroll management for your business.

Using this number on payroll forms ensures accurate reporting to the IRS and avoids any penalties or fines that may result from incorrect information.

4. Protecting Against Identity Theft

Using an EIN instead of personal social security numbers can reduce identity theft risk within your business operations.

In cases where sensitive information needs to be shared with vendors or clients, using an EIN instead of personal identification numbers like an SSN can help safeguard individuals’ identities and protect them from potential fraud.

5. Opening a Business Bank Account

Your EIN plays a critical role in opening a business bank account. You will need to provide this number when setting up your account and conducting any financial transactions on behalf of your business.

A business bank account typically requires your EIN, articles of incorporation or organization, and government-issued identification. While each bank may have different requirements, EIN is mandatory in nearly all banks.

Once you have all the necessary documents ready, you can schedule an appointment with the chosen bank and complete the paperwork.

However, it’s better to choose a bank where you can quickly open a business account online and complete any banking task in just a few clicks.

6. Hiring Employees with Your EIN

An EIN allows you to establish and maintain proper tax records with the IRS. When hiring new employees, you are responsible for withholding and paying federal income, social security, and Medicare taxes on their behalf.

These taxes are then reported using your EIN on various tax forms such as Form 941 – Employer’s Quarterly Federal Tax Return.

In addition to tax reporting purposes, having an EIN ensures your employees can file their personal income tax returns accurately. Without an EIN, their wages cannot be appropriately reported on their W-2 forms – which could lead to penalties from the IRS.

Moreover, obtaining an EIN enables you to pay salaries or provide employee benefits.

With separate bank accounts for personal and business finances, keeping track of expenses related solely to your business operations becomes easier.

Another critical aspect of having an EIN is that it proves beneficial in maintaining legal compliance with local laws and regulations.

Some states require businesses with more than one employee or certain types of companies (such as corporations or partnerships) to obtain an EIN for state tax purposes.

7. For International Business Operating in the US

You may still need an EIN if you are an international business operating in the US. This includes selling goods or services, owning rental properties, or conducting any other business activity that generates income within the country. 

Obtaining an EIN is crucial for compliance with tax laws and facilitating business operations. It can provide numerous benefits, including protecting personal information, establishing credit, and boosting business credibility.

So, if you’re an international entrepreneur looking to make your mark in the US market, get your EIN without an SSN as soon as possible.

How to Obtain an EIN

Obtaining an EIN is relatively simple and can be done online. The process may seem daunting at first, but it is pretty straightforward.

Let’s walk you through the steps and provide some practical tips to make the process easier.

1. Determine Your Eligibility

First, you must determine if your business is eligible for an EIN. Generally, any company with employees or operating as a partnership or corporation will need an EIN.

In addition, businesses that file certain types of tax returns, such as excise or employment taxes, will also require an EIN.

2. Choose Your Preferred Method

There are three ways to obtain an EIN: online, by mail, or by fax. While all methods require filling out Form SS-4, applying online is the quickest and most convenient option, as you can receive your EIN immediately upon submitting the form. 

To apply online, you must be a responsible party of the business—either the owner or principal officer—with a valid taxpayer identification number, such as a Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), or another existing EIN, if applicable.

If you choose to apply by mail or fax using Form SS-4, it can take up to four weeks for the IRS to process your request. The same applies if you choose to apply by phone.

3. Gather Your Information

Before filling out Form SS-4, ensure you have all the necessary information.

This includes your legal name and structure of your business (such as sole proprietorship or LLC), physical address of your business location, responsible party’s name and SSN or Individual Taxpayer Identification Number (ITIN), reason for applying (new business vs existing entity), among others.

4. Fill Out Form SS-4

Form SS-4 consists of seven parts, each requiring specific information about your business and its owners. Please review the instructions carefully and fill out all sections accurately.

5. Submit Your Application

Once you have completed Form SS-4, you can submit it online or by mail/fax to the appropriate IRS office. If applying online, you will receive your EIN immediately. For other methods, expect to receive your EIN within four weeks.

Get Your EIN in No Time with doola

At doola, we understand that time is of the essence when it comes to starting and running a business. That’s why we help entrepreneurs get their businesses up and running quickly and efficiently.

From setting up an LLC to obtaining an EIN, we will get your business up and running in no time without any hassle. You can leave everything to us while focusing on other important business aspects.

With our online EIN services, it’s easy to apply for an EIN from anywhere. Complete our online form with the necessary details, and we will take care of the entire application process for you.

Our team of experts will handle all the tedious paperwork on your behalf, and your EIN will be sent to you once the IRS approves it.

Don’t waste more time – let us help you get your EIN quickly!