OG Articles: What is an EIN, Should I get an EIN before/after

EIN: What it is, Who needs one and How to get one.

EIN stands for (Employer Identification Number). It is also sometimes referred to as a FEIN (Federal Employer Identification Number, or even FTIN (Federal Tax Identification Number). In a lot of ways, it’s like your business’s Social Security Number. It’s used by the IRS to identify a business for the purpose of reporting taxes. 

Two important things to remember about the EIN:

  1. Not every business needs one.
  2. You can and should form your business before getting one.

The IRS has preset guidelines surrounding which businesses need EIN’s to operate. They are based on four criteria (generally):

  1. Sole Proprietorships & Employees
  2. Single-Member LLC’s & Employees
  3. Multi-Member LLC’s & Partnerships
  4. Corporations & Non-profits

Sole Proprietorships & Employees

If your business follows the sole-proprietorship structure, does not have employees, nor file excise or pension plan tax returns, you are not required to have an EIN.

If your business follows the sole proprietorship structure and has employees, you are required to have an EIN. 

Quick Tip: Generally, having an EIN can be helpful when it comes to things like opening a business bank account and establishing a line of credit for your business.

Single-Member LLC’s & Employees

If your business follows the single-member LLC structure, does not have employees (or tax liability), you are not required to have an EIN.

If your business follows the single-member LLC structure and has employees, you are required to have an EIN. 

Quick Tip: We strongly encourage business owners (as it is sometimes required) to open a bank account. It helps should you decide to have employees later on.

Multi-Member LLC’s

If your business follows the multi-member LLC or partnership, you are required to have an EIN. This kind of LLC must file a partnership return and submit K-1’s for its members. In order to file these forms, the business must have an EIN. 

Corporations 

If your tax structure follows that of an S corporation, you are required to have an EIN for reporting taxes. 

If your tax structure follows that of a C corporation, you are required to have an EIN for reporting taxes. This is because your business is considered to be an entity on its own.

Nonprofit Organizations

If your business follows a nonprofit structure, you are required to have an EIN for reporting taxes.

Getting an EIN

Note: Your business must be formed BEFORE requesting an EIN from the IRS. You will be asked for your business’s legal business name and formation date. Thus, requiring you to have previously registered your business and received approval for its name.

You can use the IRS’s EIN Assist tool to get started. 

Quick Tip (IRS guidelines): “All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner or trustor. This individual or entity, which the IRS will call the ‘responsible party’, controls, manages, or directs the applicant entity and the disposition of its funds and assets. Unless the applicant is a government entity, the responsible party must be an individual (i.e., a natural person), not an entity.” 

Do I really NEED an EIN?

It depends! Earlier, we talked about when a business is required to have an EIN. However, generally, it’s a good idea to get an EIN for your business. Here’s why:

  1. Most banks require an EIN when opening a business banking account.
    1. Business banking accounts make it easier to track and manage business expenses.
    2. You can build and grow a line of credit by having a business banking account.
  2. In order to employ people, you will need an EIN. 
    1. Employees will then file taxes separately using the LLC’s 1040 form.
    2. In order to set up payroll, employers need an EIN.
    3. The IRS tracks payroll taxes using the business’s EIN.
    4. An EIN is required to register for State employer taxes.
  3. If you’re an LLC, an EIN helps build and maintain your ‘corporate veil’
    1. This protects you from personal liability from business debts.
    2. It helps establish credibility/professionalism, giving your business an identity separate from its owner(s).
  4. Having an EIN lessens the likelihood of identity theft.
    1. Your SSN will be more privatized.
    2. Keeping business and personal finances separate prevents someone from breaking into your accounts.

Get Your EIN for Free!

Start by using the IRS’s EIN Assist tool.

Quick Tips:

  • Hours of operation for obtaining your EIN are Monday-Friday 7:00 am – 10:00 pm.
  • Only businesses in the United States and U.S. Territories are eligible.
  • You must be in possession of a valid Taxpayer Identification Number (SSN, ITN, EIN).
  • The entity owner or responsible party may only apply once daily. 
  • Your application must be filled in one session and cannot be saved.
  • The session will time out after 15 minutes of not being in use.
  • You will immediately get an EIN once the form is completed.
  • Applications cannot be processed if an EIN was previously obtained online.
  • You can apply by fax or mail using Form SS-4. 
    • Fax: (855) 641-6935.
    • Mail: Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999.

Getting an EIN before or after (LLC’s)

We mentioned previously it’s best to get an EIN for your LLC is approved by the state. This way, your LLC’s name is approved before associating it with an EIN. You’ll also need to enter your LLC’s date of formation when completing your EIN application. 

The reality is, you still can get your EIN for your LLC before it’s approved. Here’s why: The IRS does not check to see if your LLC is in existence before issuing your EIN. Otherwise, you wouldn’t be able to receive your EIN immediately after completing the form. 

If you’ve obtained an EIN before forming your LLC, you may or may not need to cancel your existing EIN. Let’s talk more about this:

  1. Your EIN is obtained before your LLC is approved and your LLC is approved: you are good to go! There is nothing else you need to do.

  2. Your EIN is obtained before your LLC is approved and your LLC is not approved. Depending on the state you are forming your LLC in, your LLC could be rejected for a variety of reasons. For example, the name could already exist or is too close to an existing business’s name. If this is the case, you’ll need to re-file using a different LLC name. In general, next steps should be:
    1. Cancel the first EIN 
    2. Re-file your LLC 
    3. Wait for your LLC’s approval
    4. Apply for a new EIN

Quick Tips: Most states will issue a refund to you if your filing is rejected, but not all. If you need to get a refund, contact your Secretary of State’s office.

When you cancel an EIN, the IRS will send a confirmation letter once it’s done. You don’t have to wait on the confirmation letter to apply for your new EIN.

Start your business today