An Employer Identification Number (EIN) or, as it’s sometimes known, a Federal Tax ID Number, is a nine-digit number assigned to most business entities, particularly those that may pay wages. The number is issued by the Internal Revenue Service (IRS). Sole proprietorships, government agencies, nonprofits, trusts, estates, corporations and even some individuals may all use EINs. Corporations and partnerships will typically be required to furnish their EINs in order to open bank accounts or to secure loans or lines of credit.
When You Need an EIN
If any of the following describes you or your business, you must obtain an EIN:
- You are or become a partnership or an S or C corporation.
- You employ at least one individual to whom you pay wages.
- You file excise, employment, or alcohol, tobacco and firearm tax returns.
- You withhold taxes on non-wage income paid to a non-resident alien.
- You have a Keogh plan.
- You are an organization such as a charity, social welfare group, labor organization or trade association, regardless of whether you will have employees.
- You are involved with trusts (some exemptions apply), estates, farmers’ cooperatives or plan administrators.
If your business experiences a change in structure or ownership, you will usually need to get a new EIN.
When You Don’t Need an EIN
A sole proprietor without employees or pension plans and who doesn’t pay excise taxes doesn’t require an Employer Identification Number. He or she may use his or her social security number to file income, self-employment, estimated and other taxes.
How to Get Your Employment Identification Number
In order to apply for an EIN, you must apply online using the IRS’ Internet application or you must complete and submit IRS Form SS-4 by mail or fax. International applicants may apply by phone. It’s wise to file your application before your business begins operations. That way, you can ensure the number is available by the time you have to start paying taxes. It’s recommended that you submit your SS-4 at least four to six weeks before you expect to need it.You will be required to disclose the name and Taxpayer Identification Number (EIN, Social Security Number or Individual Taxpayer Identification Number) of the true principal officer, grantor, general partner, owner or trustor.
The IRS refers to this entity or person as the “responsible party.” The responsible party is essentially the individual who has control over the funds and/or assets of your business and who is thus capable of exercising control over your enterprise.
You are not allowed to use a “nominee” in place of a responsible party when applying for an EIN. The IRS defines a nominee as someone given limited authority, usually for a specific time period, to act on behalf of the business. However, since the nominee isn’t actually the true responsible party, he or she is not permitted to obtain an EIN. Doing so may expose your business to IRS enforcement action if not promptly corrected.If you’re filing for tax-exempt status, take care that you legally formed your organization before applying for an EIN, so you don’t run afoul of IRS regulations. The IRS assumes your organization was formed legally and the three-year filing clock begins running automatically when they receive your application. Organizations that fail to file required returns or notices for three consecutive years are subject to automatic revocation of their tax-exempt status.
An EIN Means You’re in Business
If you are operating any kind of partnership, sole proprietorship, organization or corporation, whether you have employees or not, it’s a good idea to get an Employer Identification Number. There’s no cost involved in obtaining one, so there’s really no reason not to submit your application from the beginning so you’ll have it when you need it.
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