If you are considering starting a business, the first few steps will be to choose your entity type, file your paperwork with the state, and get an EIN. An EIN, or Employer Identification Number, is a 9-digit number specific to your business that’s used for taxes. It’s like a social security number for your business—but one that you can share with others.
Do I need an EIN?
In many cases, an EIN is required by the IRS. If your business is filed as a corporation or partnership, EINs are non-negotiable.
Likewise, if you fit any of the following criteria, an EIN will be a must-have:
- You have employees
- You remit sales tax to the state
- You also file employment, Excise, or Alcohol, Tobacco and Firearms taxes
- You withhold taxes on income, other than wages, paid to a non-resident alien
- You have a Keogh plan
If you own a sole proprietorship, an EIN is not required by the law. However, it’s generally encouraged to give your identity some protection. Clients who pay you more than $600 will be required to send you a 1099-MISC form come tax time, and that form requires either your social security number or EIN. Rather than sharing your SSN with customers, an EIN gives you some additional protection.
It’s also required for opening up business bank accounts. It’s considered standard practice to keep your personal and business finances completely separate, so a designated business bank account is a good idea.
Overall, there are very few downsides to getting an EIN, and the process is quick and easy.
How do I get an EIN?
To apply for an EIN, you’ll complete an online application on the IRS website. The application is free and only takes a few minutes to complete.
You can also apply for an EIN by mail, fax, or telephone. However, applying online is the quickest option and will give you an EIN immediately after completing the application.