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How to Get an IRS Employer Identification Number EIN for Taxes

purpose of ein number

A business needs an EIN in order to pay employees and to file business tax returns, as well as to open corporate accounts with financial institutions such as banks, credit unions, and brokerage houses. To be considered a Partnership, LLC, Corporation, S Corporation, Non-profit, etc. a business must obtain an EIN. https://www.bookstime.com/articles/what-is-a-pay-stub This applies to business with no income, which are not exempt from filing federal income tax returns. Businesses that don’t need an EIN are those that are not required by the IRS to file taxes separately from their personal income taxes. These businesses also must not meet any of the conditions listed above.

purpose of ein number

Another purpose of an EIN is to distinguish themselves from individuals for tax reporting purposes. Non-US citizens without a Social Security Number will find it easier to establish a business in the United States with an EIN. This opens up the possibility of getting a business credit card or bank account for their business before getting a Social Security number as a citizen. Even as a solo entrepreneur, you will need to provide clients with either a Social Security number or FEIN to pay an invoice or for contract purposes. Having a FEIN adds to the credibility of your business, and shows that you are not doing your work as a gig; instead, you would be perceived as a dedicated professional. The enhancements for taxpayers without a qualifying child implemented by the American Rescue Plan Act of 2021 will not apply for tax year 2023.

How to Apply for an EIN Number

In the same manner, the IRS assigns Employee Identification Numbers (EINs) to businesses, usually when they are newly established. When you apply for an EIN, we presume you’re legally formed and the clock starts running on this three-year period. Finally, purpose of ein number when you get an EIN for tax reporting purposes, your privacy will be protected, too. An EIN boosts the confidentiality of your Social Security number (SSN), as you can now offer that instead of your personal ID number as a form of identification.

purpose of ein number

Those with an LLC should outsource its formation to an LLC service, and it will apply for an EIN in your stead. This helps you maintain your “corporate veil,” i.e., protect yourself from personal accountability for possible business debts. Since it’s essential to do this right, hiring an online legal service to cover that would be a great move. Now that you know the long and short answer to the “What is an EIN number? ” question, we can explain why having one brings many benefits even if you don’t need it.

Do I need an EIN if I’m self-employed?

Ensure that the Form SS-4PDF contains all of the required information. If it is determined that the entity needs a new EIN, one will be assigned using the appropriate procedures for the entity type and mailed to the taxpayer. Find out where to mail Form SS-4 on the Where to File Your Taxes (for Form SS-4) page. Each U.S. citizen is issued a unique Social Security number upon their birth. This number enables easy identification by government entities and also serves to distinguish one person from another.

purpose of ein number

In some cases, you can use your Social Security number instead of an EIN, but using an EIN provides a level of protection against identity theft. Once you have an EIN, you’ll no longer have to provide your Social Security number to clients or vendors for tax purposes. Your clients may prefer to use your EIN for their own tax reasons. Using your business’s EIN instead of your personal SSN or ITIN provides additional evidence that you’re a contractor and not an employee.

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