Do you need an EIN?

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What is an EIN?

Before you consider whether or not you need an EIN, you need to know what an EIN actually is. Many formation services list getting an EIN as part of forming your business.

An EIN, short for Employer Identification Number, is a unique nine-digit number that’s assigned to a business by the Internal Revenue Service (IRS) to businesses operating in the U.S., for the purpose of identification. It can also be referred to as a TIN (Taxpayer Identification Number), a FEIN (Federal Employer Identification Number) or a FTIN (Federal Tax Identification Number).

There are a lot of things you need to consider when getting an EIN. The first thing is that it’s completely free, so it’s good for you to do anything you want at no extra cost. Sometimes you’ll need an EIN by law because of certain reasons, but other times it’s useful to have one, as it lets you do more with your business. Here we’ve listed reasons why you might want an EIN and also need one.

Are you required to have an EIN?

From information taken from the IRS website, we’ve concluded there are a few conditions, and if they apply to you you will need to get an EIN:

  • You have employees that you pay
  • Your business is a corporation or a partnership
  • You have a Keogh plan or another sort of plan for yourself
  • You withhold taxes on income, other than wages, paid to a ‘non-resident’ alien
  • You file any of these tax returns: tobacco, firearms, alcohol, excise
  • You have a trust or an estate
  • Your business is a non-profit organisation

If you want more specifics, here is a breakdown on each type of business structure:

Sole proprietorships

If your business has no employees and doesn’t file excise or pension plan tax returns, you’re considered a disregarded entity, so you’d use your own SSN for any tax purposes. However, it’s useful to get an EIN to do things like open a business bank account, build business credit, lower the risk of identity theft and overall look more professional.

LLCs: single-member and multi-member

Similar to sole proprietorships, if you’re a single-member LLC that has no employees or filing of excise or pension plan tax returns, you’re not required to get an EIN. But for similar reasons as listed above, it’s always a good idea, and it’s also great for maintaining your corporate veil.

LLCs can choose to be recognised as sole proprietorships, partnerships or corporations for tax purposes. So if you’re a multi-member LLC, you can choose to be taxed as a partnership or a corporation. This means it needs to obtain an EIN because the LLC has to file a partnership return, and also provide K-1s to members of the LLC. Each member must pay taxes to the IRS on their individual tax return.

Partnerships

Most partnerships require EINs, except certain joint undertakings for only the purpose of sharing expenses. Existing partnerships may also need to reapply for EINs when one partner takes over, if the partnership decides to incorporate or if the existing partnership is dissolved into a different partnership.

Corporations

If you have an S corp tax structure, you need to file corporate income taxes through Form 1120S and Form K-1 for individual shareholders. So for this reason, you need an EIN.

If you have a C corp, your business is viewed as a separate entity. The C corp pays a flat tax at corporate level, and is taxed again on shareholder level, through Form 1099-DIV – double taxation. For this reason corporations also need an EIN. A C Corp can file their federal tax return with Form 1120.

TRUiC has more general information on EINs as a whole, and why you might want or need them, along with other frequent questions asked and answered. Visit this website for more.