When you are starting a business, there is a lot to learn. That goes without saying. But, that makes it incredibly easy for little details, like your business EIN, to slip through the cracks. Learn all you need to know about the Employer Identification Number, when you need it and more below.
What Is An EIN?
EIN is short for Employer Identification Number. An EIN is a a number that is assigned to businesses by the IRS. The employer identification number is like a social security number for your business. It is comprised of nine digits and will be required if you ever want to hire employees. This basic understanding of an EIN should help you to recognize its importance.
Who Needs An EIN?
Not all businesses require an EIN. If you do not have any employees, there is no need for one. This should go without saying. That is why it is called an Employer Identification Number. If you are not an employer and your business is not an employer, you do not need to apply for an EIN with the IRS. If you do plan on hiring an employee in the near future, make sure to apply for your EIN in advance. Otherwise, you will have to wait until after you receive that credential to onboard new employees. That could lead them to turn down your offer. Be sure to be prepared.
If you plan on owning and operating a sole proprietorship, you are the exception to the EIN rule. This type of business modeling does not require one. When you start a sole proprietorship, your business EIN is your social security number. Sole proprietorships can hire employees without having to contact the IRS and apply for an EIN. This makes it much easier to start growing your business and your team. But unless you decide to open a sole proprietorship, you are not afforded this luxury. Be sure to keep this in mind if this business incorporation structure is one you are considering.
How To Get An EIN
You need to request an EIN from the IRS using Form SS-4 during your self employed first year. That is the only place you will be able to receive this credential. You can find the IRS Form SS-4 online on the IRS website. Navigate to the “Forms and Publications” section of their website to locate the file. Then, you can mail or fax your completed SS-4 form to the IRS office.
How Much Does It Cost?
It does not cost anything to obtain an employer identification number. However, this is only true for the federal government. You will also need to get a tax ID number from the state where your business is located. These state tax ID numbers do typically require you to pay a small filing fee. Be sure you factor those costs into your startup budget.
If you are an entrepreneur, requesting an employer identification number is a necessity if you ever plan on hiring employees. This is a a requirement of HR for startups. An EIN will identify your business to the IRS so that you can pay employees legally. Be sure to keep this in mind long before you want to start hiring. That way, you will be one-hundred percent prepared to onboard new hires when your business is ready.
Photo from http://formocks.com/tax-id-lookup-by-business-name/