What is EIN number and what is it for?

Are you looking toregister your business in the United States, and you keep reading about the EIN everywhere, but you don't understand what it is?

In this article, we will tell you what the EIN number is, what it is for, how to know if you need one and how it differs from other nomenclatures that are equally important in the business field. Let's get started!

What is the EIN?

Specifically, an employer identification number (EIN) is a unique identification key that is assigned to a business entity so that it can be easily detected by the Internal Revenue Service (IRS), the organization in charge of managing and collecting taxes in the United States.

Although later we will tell you exactly what the benefits of having an EIN are, in principle you should know that the EIN number is commonly used by employers to be able to declare taxes.

The EIN number in question is made up of nine digits, distributed in the following format: XX-XXXXXXX. The particularity of this code is that it includes information about the state in which the company is registered, which makes identification easier.

How do you know if you need an EIN?

Knowing if you need an EIN is very simple. The official IRS website offers a questionnaire in which it explains that you must request an employer identification number if you answer "yes" to any of the following questions:

• Do you have employees?
• Do you operate your business as a corporation or a partnership?
• Do you file any of these tax returns: Employment, Excise Taxes or Alcohol, Tobacco and Weapons Fire?
• Do you withhold income taxes, other than wages, paid to a nonresident alien?
• Do you have a Keogh plan?
• Are you involved with any of the following types of organizations?Plan administrators; farmers' cooperatives; real estate mortgage investment conduits; non-profit organizations; trusts, except certain revocable grantor-owned trusts, IRAs, business income tax returns of exempt organizations; farms.

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Nowadays, obtaining your EIN number is really easy: you can complete the application by phone, if you are not in the United States, fax, email or internet. 

Specifically, applicants must fill out the form SS-4 which is available on the official IRS website. In the document, you should include a lot of information, including:

• The type of business.
• The date of start-up or acquisition.
• The reasons for applying.
• The primary industry of the business.

What is the EIN for?

The EIN number or employer identification number is very important these days, mainly because it offers some benefits that facilitate the economic, legal, tax and personal life of business owners and their members.

Declare taxes to the IRS

First of all, having the EIN number is necessary to file taxes with the IRS. The IRS uses the EIN to keep track of your business's tax returns. If you do not have an EIN by tax date, you will need to complete certain paperwork to notify them. If you forget this, your return may not be accepted and your business may suffer consequences.

Open a business bank account

All banks will require an EIN to open your business bank account (except in some specific cases for sole proprietors).  To open an account, in addition to the EIN, you will be asked for the date the business was formed, location, legal name, and personal details of the owners. 

Speed up loan applications

On the other hand, having an EIN number speeds up the business loan application process since, although most lenders do not specifically require it, they usually require a commercial bank account with deposits to receive funds and make payments. 

Make it easier to work with suppliers and clients

An EIN makes third parties more confident in your business. Customers or suppliers may want to verify your company's credit information, and the only way to achieve that is through the EIN, for example. 

Prevent identity theft

Obtaining an EIN number is an effective way to prevent identity theft, as it separates personal finances from business finances. By having this number, it is not necessary to provide the Social Security number to clients or suppliers, maintaining privacy and reducing the chances of theft.

Hire employees easily

If you have employees (or plan to hire in the future), having an EIN is necessary. Your business EIN will be needed for payroll taxes, social security, unemployment insurance, compensation, etc...

Differences between EIN, tax ID, ITIN and SSN

Although the EIN number is a code used for tax and commercial purposes, it differs from the tax ID, ITIN and SSN. Next, we explain what each of these nomenclatures consists of.

What is the tax ID?

The tax ID is, simply, a tax identification number assigned to natural or legal persons and issued by a specific tax agency. In the case of the United States, this code is generated by the aforementioned IRS.

What is the ITIN?

On the other hand, the ITIN or personal taxpayer identification number is a tax identification also issued by the IRS but for those people who cannot have a Social Security number.

Foreign members of an LLC or a corporation need this number to file United States federal income tax.

What is SSN?

Now, the Social Security number, known by its acronym SSN, is issued by the IRS or the Social Security Administration (SSA) to all resident Americans. The objective of this key is to track individual income in order to collect taxes.

In short, the SSN is the tax identification number or tax ID issued by the IRS to residents of the United States, while the EIN is the identifier of companies. In turn, the ITIN is the equivalent of the SSN for non-Americans who want to do business in the country and comply with their obligations.

Conclusion

Although there are various tax terms in the United States, the EIN number or employer identification number is an essential key for companies that seek to do business in the country, complying with their tax obligations.

Getting this nine-digit code is very simple, since you can do it by phone, fax, email or online. Once you have it, you can start managing your business legally and transparently.

Get professional help to apply for your EIN

• Business experts in the USA
• Legal and accounting team
• Free first consultation