Getting accurate information should be your main priority when setting up a new business. That’s why you shouldn’t trust sources that claim the cost for EIN is high because the IRS offers this service for free.
However, before you start worrying about the costs, you must determine if you need the Employer’s Identification Number to run a business.
The IRS doesn’t require all types of businesses to have EIN which means under certain circumstances you can file federal tax for your business with your Social Security Number.
In this article, we’ll discuss the advantages of obtaining EIN and give you an accurate estimate of associated costs.
Table of Contents
What is EIN?
The Employer’s Identification Number is a 9-digit number assigned to businesses registered in the United States in order to identify them and enable them to file federal taxes.
The terms Federal Tax ID and Federal Employer’s Identification Number are also used to denote this unique number.
Moreover, EIN can help you secure funding for your business because it is required by most financial institutions that approve grants, lines of credit, and business loans.
Who Needs an EIN?
Assuming that all types of businesses need EIN can be misleading.
Speaking from a strictly legal standpoint the IRS doesn’t require single-member LLCs and sole proprietorships to have EIN because, in both business models, the owner of the business is the only employee.
Hence, you can use your Social Security Number instead of EIN to file federal taxes if you choose to start a sole proprietorship or a single-member LLC.
All other types of businesses must have EIN, so if you want to start an LLC, a corporation, a nonprofit organization, or a partnership you must obtain EIN.
Moreover, you’ll need this number to hire employees and withhold taxes for their salaries and wages regardless of the business model you choose.
The Advantages of Obtaining an EIN
Even though the owners of single-member LLCs and sole proprietorships aren’t required to have EIN by the law, they might find it challenging to manage their business without this number.
Obtaining EIN will enable you to:
- Open a business bank account. Optionally, you can use your Social Security Number.
- Have more than one employee
- Acquire licenses and permits for your business
- File state and federal taxes. Sole proprietorship and single-member LLC owners can file taxes with SSNs if they employ only one employee.
Moreover, you’ll need EIN if you want to have a 401(K) or Keogh retirement plan even if your business isn’t legally required to have one. Single-member LLCs and sole proprietorships with EIN have limited funding opportunities as they cannot apply for loans or open a line of credit.Â
Acquiring EIN will also ensure that your personal credit score doesn’t affect your business’ credit eligibility.
Meeting the Requirements for an EIN Application
You must have a registered business within the United States and US Territories and a valid SSN to apply for EIN. Optionally, you can use the Taxpayer Identification Number instead of the SSN.
The IRS allows businesses of all sizes to apply for EIN, so you can obtain this number regardless of how many employees your business has. In case you don’t have SSN, you’ll have to apply for TIN before continuing with the EIN application process.
Application Methods
The IRS allows new business owners to choose the EIN application method. Hence, you can apply for EIN online, by mail, telephone, or by fax.
You can apply for EIN online if you have SSN and a business registered in the US. Remember, the responsible party must be an individual and you cannot use an entity as the responsible party on your application.
You’ll have to fill out Form SS-4 if you decide to submit your application via mail or fax. The IRS will need up to four days to approve an application submitted via fax, while you’ll have to wait up to four weeks to obtain an EIN if you submit your application via mail.
International applicants with registered businesses in the territory of the United States can apply for EIN by phone. The IRS has a toll-free number 267-941-1099 that is available from Monday through Friday between 6 am and 11 pm Eastern Time.
The person making the phone call must be able to answer all questions from Form SS-4 correctly.
A Quick Guide through Online EIN Application Process
Now that you have all the information you need to prepare for the application process, let’s walk through the steps you’ll have to take to obtain EIN for your business.
Please note: The online EIN application expires after fifteen minutes of inactivity, which is why you must complete the application in one go.
The process has the following five stages:
- Identify.
- Authenticate.
- Addresses.
- Details.
- EIN Confirmation.
During the first stage, you’ll have to select a business type, indicate the state where the business is located, and provide the reason why you’re applying for EIN (e.g. starting a new business, banking purposes, etc…).
The Authenticate stage of the process involves providing the responsible party’s full name and SSN or TIN. Afterward, you should proceed to specify the business address and other relevant details.
The IRS system will assess your application and assign you a new EIN while the session is still in progress. Keep in mind that you can’t obtain more than EIN per responsible party per day.
EIN Application Fees
The IRS doesn’t charge the EIN application fee, so as long as you have a valid SSN or TIN you can get EIN for your business for free.
You cannot apply for EIN online if you currently don’t have a TIN or SSN and you’ll have to opt for a different application method. The cost for EIN should remain negligible even if you opt to submit your application via fax or mail since you won’t have to cover application fees.
Business owners often choose to outsource EIN applications to corporation or LLC services. In case you choose to follow this path, you’ll have to spend between $50 and $300 to apply for EIN.
These expenses aren’t related to the EIN application but rather to covering the costs of hiring personnel that will complete the application for you. Doing so is unnecessary unless your business has a high number of responsible parties that need EIN.
Frequently Asked Questions
Employer’s Identification Numbers don’t expire. Consequently, you don’t have to renew EIN the IRS assigned to your business.
Having a registered business within the territory of the United States is one of the conditions you must meet before applying for EIN. As a result, you cannot apply for EIN unless your business is already registered.
You’ll have several options if you cannot find your EIN because you can try contacting your bank if you opened an account using EIN, search for tax returns you filed in the last few years, or look for a notice the IRS sent to your email as a confirmation of application.
The IRS doesn’t limit the number of EINs it assigns to businesses, which is why your organization can have multiple responsible parties. However, a business cannot obtain more than one EIN per day.
Talk to a CPA
Applying for EIN won’t cost you a cent if you go through this process alone. However, this may seem intimidating if this is your first time applying for EIN.Â
Go to choicetaxrelief.com or call 866-8000-TAX and schedule a free consultation with a CPA who can guide you through the EIN application process.
Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
