EIN for Small Business: What to Know

ein number for small business, federal employer id number, fein

Estimated reading time: 4 minutes

Starting a small business is a big undertaking that involves lots of planning and a seemingly endless list of startup-related tasks. Whether you are selling products or services, or perhaps both, you need to determine what will make your business unique so it can hopefully gain a competitive advantage. Next, you will need to choose a business name and file all necessary legal paperwork. Then, of course, you will also need to find the right business location, purchase equipment, hire employees, establish your brand identity, and launch a business website. Not every startup task is as time-consuming as these.

For example, you can get an employer identification number (EIN) for your small business in just minutes, which is free. You will need an employer identification number, also referred to as a federal employer ID number (FEIN), to pay federal income taxes, open business checking and savings accounts, and apply for a business license. This blog article from Balboa Capital covers the basics of the EIN for small businesses.

Types of businesses that need an EIN.

The employer identification number, or EIN, is a nine-digit number given to employers in the United States. The Internal Revenue Service (IRS) assigns an EIN to any business with employees, whether it is a corporation or a partnership. For example, companies that file employment, excise, alcohol, tobacco, and firearms (ATF) taxes or offer tax-deferred pension plans need to have EINs.

In addition, certain types of business organizations are also required to have EINs. These include trusts, not-for-profits, estates, and real estate investment agents/firms. Again, it is a good idea to consult with a business accountant or attorney, as this is not a complete list, and the list is subject to change by the IRS.

What an employer identification number is used for.

An employer identification number can be used for several business-related tasks. For starters, it can be used to open a business banking account. Most large and community banks require an EIN for their business checking and savings accounts. A business bank account keeps your personal and business finances separate. This saves time and makes managing your budget, payroll, and expenses easier. Next, a business bank account will come in handy if you want to apply for a business loan, business line of credit, business credit card, or another type of business funding.

Your EIN is also used when filing your business taxes. Your EIN lets the IRS know that you are a legally formed business and must include your EIN on all required IRS forms. Your EIN is tied to your business, which keeps your social security number (SSN) more private. When you work with vendors and clients that ask for your tax identification number, you can use your EIN instead of your SSN. This can reduce the chances of falling victim to identity theft and hacking of your personal financial information.

Lastly, you can use your EIN to help build your business’s credit score. An EIN is typically required to apply for small business funding, and repaying what you borrow on time can help boost your credit rating. As you know, good business credit can put you in the driver’s seat when it comes to borrowing. Good credit opens the door to more considerable borrowing power and lower interest rates.

How to get an EIN.

Getting an EIN is simple, fast, and can be done online. Before applying for an EIN, you have to form your small business. Specifically, you must provide your business name and inception date on your EIN application. If you have completed these steps, you can visit the IRS website’s EIN section to see the necessary information and start the online application process. Once your application is submitted and verified by the IRS, you will be issued an EIN for your small business. You can apply via fax or regular mail if you do not want to apply for an EIN online. Instructions for both of these options can be found on the IRS website.

When a new EIN is needed.

If you are a sole proprietor and buy or inherit an existing business, add partners to your business, switch to a different legal structure, or go through bankruptcy, you will need to apply for a new EIN. However, a new EIN is not required if you are a sole proprietor and you change your business’s name, move to another location, or have more than one location.

Corporations, limited liability companies (LLCs), estates, and trusts each have scenarios in which a new EIN is required, which are on the IRS website. In the event that you are legally required to obtain a new EIN, you will need to provide it to the IRS immediately after it is issued.

Balboa Capital, a Division of Ameris Bank, is not affiliated with nor endorses the Internal Revenue Service (IRS). The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.