Starting a business often involves navigating a maze of administrative tasks. Among the crucial steps is obtaining an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). Think of it as a Social Security number for your business. This unique nine-digit number is essential for various business operations, from hiring employees to opening business bank accounts. The good news is, applying for an EIN directly from the IRS is free and can be done quickly online. This guide will walk you through everything you need to know about How To Get An Employer Id, ensuring a smooth process and helping you avoid common pitfalls.
Understanding the Employer Identification Number (EIN)
An Employer Identification Number, or EIN, is a unique tax ID assigned to businesses by the IRS. It’s used to identify your business entity for tax purposes. While the term “Employer Identification Number” might suggest it’s only for companies with employees, many other business structures require an EIN as well. It simplifies tax administration and is vital for legal and financial operations.
Who Needs to Get an Employer ID?
Not every business structure necessitates an EIN, but many do. You’ll generally need to apply for an EIN if your business:
- Hires employees: If you plan to have employees, an EIN is mandatory for tax withholding and reporting.
- Operates as a corporation or partnership: Most corporations (both C and S corporations) and partnerships are required to obtain an EIN.
- Files business taxes: If your business needs to file employment, excise, or corporate income tax returns, an EIN is necessary.
- Opens a business bank account: Banks typically require an EIN to open accounts under a business name.
- Changes business structure or ownership: Significant changes like incorporating or changing ownership might necessitate a new EIN.
- Administers trusts, retirement plans, or estates: Certain types of trusts, retirement plans (other than self-employed SEP plans), and estates may require an EIN.
- Operates a tax-exempt organization: Non-profit organizations typically need an EIN to gain and maintain their tax-exempt status.
Even if it’s not strictly required for your business type, having an EIN can add credibility and simplify various business processes.
Applying for an EIN Online: Step-by-Step
The IRS provides a convenient online tool to apply for and receive your EIN instantly. Here’s how to navigate the process:
Eligibility for Online Application
Before you start, ensure you meet the IRS’s online application criteria:
- Principal Business Location: Your business’s primary place of business must be located in the United States or U.S. territories.
- Responsible Party: You must be the “responsible party,” meaning you control, manage, or direct the entity, or you are an authorized representative. The responsible party usually needs to have a Social Security number (SSN) or an Individual Taxpayer Identification Number (ITIN).
- Valid Taxpayer Identification Number: You will need the responsible party’s SSN or ITIN to complete the application.
If your principal business location is outside the U.S., the online tool is not for you. In this case, you’ll need to apply by phone, fax, or mail, as detailed later.
Information You’ll Need to Gather
To ensure a smooth application process, gather the following information beforehand:
- Business Legal Name: The official name of your business.
- Trade Name (DBA) if applicable: If your business operates under a “doing business as” name, you’ll need this.
- Business Address: Your physical business address.
- Mailing Address: If different from the business address.
- Type of Business Entity: e.g., sole proprietorship, partnership, corporation, LLC. Be specific about the corporate structure (S-corp, C-corp).
- Reason for Applying for EIN: e.g., starting a new business, hiring employees, banking purposes.
- Principal Business Activity: A brief description of your business’s primary activity.
- NAICS Code (optional but helpful): The North American Industry Classification System code that categorizes your business’s industry. You can find this using the NAICS code search tool on the Census Bureau website.
- Responsible Party Information: Name, SSN or ITIN, and contact information of the responsible party.
- State and Date of Formation (for entities formed at the state level): If you’ve formed an LLC, corporation, or partnership with your state, you’ll need this information. Crucially, for these entity types, it’s recommended to form your entity with your state before applying for an EIN. Applying for an EIN before formally registering your business with the state can sometimes lead to delays.
Completing the Online EIN Application
Once you have all the necessary information, follow these steps:
- Access the IRS EIN Online Tool: Go to the IRS website and search for “EIN online application” or directly navigate to the IRS EIN Assistant.
- Begin Application: Click on the “Apply Online Now” button to start the application.
- Answer Questions: The online tool will guide you through a series of questions about your business. Answer each question accurately and carefully.
- Submit Application: After completing all sections, review your information and submit the application electronically.
Important Notes for Online Application:
- Single Session: The application must be completed in one session. You cannot save your progress and return later.
- Time Limit: The application session times out after 15 minutes of inactivity. Be prepared to complete it without interruptions.
- Immediate Issuance: If your application is validated, the IRS will issue your EIN immediately online.
- Confirmation Letter: After receiving your EIN, print and save your EIN confirmation letter (Form CP 575) for your records. You will need this document for various business-related activities.
Alt text: Sample IRS Form CP 575, EIN Confirmation Letter, showing business name, address, EIN number, and IRS official logo, emphasizing the importance of printing and saving this document for business records.
Other Ways to Apply for an Employer ID
If you can’t apply online due to eligibility reasons or preference, the IRS offers alternative methods:
- By Phone (for International Applicants): If your principal business is located outside the U.S., you can apply by phone. Call the IRS at the phone number provided on the IRS website for international EIN applications.
- By Fax or Mail: You can download Form SS-4, Application for Employer Identification Number, from the IRS website. Fill out the form carefully and fax it to the appropriate IRS fax number or mail it to the IRS address listed on the form instructions. Processing times for fax and mail applications are significantly longer than online applications.
Key Considerations When Getting an Employer ID
- It’s Free from the IRS: Be extremely cautious of third-party websites that offer to obtain an EIN for a fee. Applying directly through the IRS is always free. You should never have to pay to get an EIN from the IRS.
- Apply Only When Ready: It’s generally advised to apply for an EIN only when you are ready to actively start your business operations.
- One EIN per Responsible Party Per Day: The IRS limits online applications to one EIN per responsible party per day.
- FinCEN Beneficial Ownership Reporting: Be aware of the beneficial ownership information reporting requirements from the Financial Crimes Enforcement Network (FinCEN). Starting January 1, 2024, many companies must report information about their beneficial owners to FinCEN. Check FinCEN’s website (fincen.gov) to determine if this applies to your business. The IRS cannot answer questions related to FinCEN requirements; you must contact FinCEN directly for clarifications.
Conclusion
Obtaining an Employer Identification Number is a fundamental step in setting up your business. The IRS’s online EIN application tool provides a fast and free way to get your employer ID, provided you meet the eligibility criteria and have the necessary information ready. By understanding the process, gathering required details beforehand, and applying directly through the IRS, you can efficiently secure your EIN and move forward with building your business. Remember to always rely on official IRS resources and avoid paying for services that are freely available directly from the source.
