Getting an Employer Identification Number (EIN)
Employee Identification Overview
An Employer Identification Number (or "EIN," sometimes called Federal Tax ID Number) is a nine-digit number assigned by the Internal Revenue Service (IRS). EINs are used by employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates of decedents, government agencies, certain individuals, and other business entities.
You are required to obtain an EIN if you do one or more of the following:
- Form a "C" or "S" corporation or partnership (in this case the EIN serves essentially the same purpose that a social security number does for a sole proprietorship)
- Pay wages to one or more employees
- File pension or excise tax returns
- A sole proprietorship with no employees, pension plans, or excise taxes does not need an EIN. A sole proprietor can use his or her social security number for income tax, self-employment, and other tax purposes.
What if I Employ Domestic Help in My Home?
If you employ household employees including housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employee, chances are you will need to pay taxes on that person. Also, generally speaking, you will not need to pay any employment taxes for using an independent contractor or other persons who provide their services that are not your employees. Learn more about payroll taxes on the IRS website or speak to a qualified business attorney who specializes in taxation.
Importance of an EIN
Getting an EIN should be at the top of your list of things to do to get your small business up and running. Until an EIN is obtained, many important business functions will be delayed. The most important of of these functions is being able to use the Electronic Federal Tax Payment System (EFTPS) and filing of election forms and returns to the IRS.
There are three primary ways you can apply for a EIN for your small business: online, by phone (800) 829-4933), or by mail . If you want to save yourself time on the phone or a postage stamp, online is the most convenient way to go. If the IRS is able to validate the information you enter, an EIN is issued to you immediately. Mail is the slowest option, taking about four weeks from the date the IRS receives your application.
For more detailed information on how to determine whether you should obtain an EIN, refer to the IRS publication Understanding Your EIN [PDF]. To obtain an EIN you must complete IRS Form SS-4 . It is a good idea to apply for an EIN before you open for business so that it will be available when the first taxes must be remitted. Most banks will require an EIN to open a corporate or partnership bank account.
Getting it Right the First Time: Hire a Business and Commercial Law Attorney
Interacting with the IRS can be an unpleasant experience. Not fulfilling your business tax obligations can be even more unpleasant. Why not get it correct the first time? A good first step is speaking to a business and commercial law attorney in your jurisdiction to learn more about tins and whether or not you need one for your small business.
- Employer Identification Number (EIN) FAQ;
- State Guide: Articles of Incorporation;
- State Guide: Forms and Fees for Business Formation.