I’ve been talking to lots of online entrepreneurs on strategy calls recently, and one question that comes up repeatedly is “when do I apply for a new EIN number?”
In this post I want to take a minute to demystify many of the questions surrounding EIN numbers, such as what they are, who needs them, and when to apply for them. I will also take some time to review some of the common mistakes people make when applying for an EIN number and what to do if you are an international applicant.
Let’s get to it.
What is an EIN Number?
Simply put, an EIN stands for Employer Identification Number or Federal Tax Identification Number (TIN). This is a nine-digit number used by the Internal Revenue Service (IRS) to identify businesses that operate in the United States.
You can click this link to apply for an EIN through the IRS website online. But before you do, read on to make sure you are eligible for an EIN and need one for your business.
Who can apply for an EIN?
To be eligible for a Federal Employer Identification Number, you must meet two primary criteria according to the IRS.
First, your principal business must be located in the United States or the U.S. Territories.
Second, the person applying for the EIN number online must have a valid Taxpayer Identification Number already. This could be a Social Security Number (SSN), Individual Tax Identification Number (ITIN) or Employer Identification Number (EIN).
Also, be aware that the “responsible party” may only submit one application online per day. This is typically not an issue. But if you are forming multiple companies, then you can only request one EIN per day.
You should also note the requirement that the responsible party must have a valid tax ID number already. If they don’t, which is typically the case for non-US citizens who are operating a US based company from overseas, then they must go through a separate process to obtain an EIN.
What is an EIN used for?
An EIN has many different uses. Aside from identifying your business for the IRS as mentioned above, an EIN is also required to open up a business bank account or obtain a business loan.
Note that while you can use your SSN to open a business bank account or obtain business loans, this practice is discouraged as it can lead to commingling of business and personal funds which will cause you a number of headaches come tax season.
If you decide to move forward with forming an LLC, you should obtain an EIN after your LLC is formed. Many people make the mistake of obtaining an EIN after they file their Articles of Organization, but before their LLC is approved.
If for some reason the LLC is disallowed (frequently because the name is not available) then this can again cause you problems with the IRS as you will need to cancel that EIN and request a new one. (In reality, because the IRS issues a unique number for each business entity, your number will never actually be "cancelled" but the IRS will close the business account associated with your EIN).
I’m Just a Sole Proprietorship, do I REALLY need an EIN?
This is a major question I get with people that schedule a strategy call with me.
And my answer is always a resounding YES.
First, I try to explain to clients that they do in fact need an LLC, even if they don’t think they do.
Here is a video that explains why you should have an LLC.
If they decide to hold off on the single-member LLC against my advice, then I strongly encourage them to obtain an EIN. There are two primary reasons for this.
#1 You Should Use Your EIN to Open a Business Bank Account
As stated before, your bank will require an EIN to set up a business bank account or open up a business credit card or line of credit. And as a sole proprietor it is possible to use your SSN, but for privacy reasons and tax purposes, I strongly discourage this. For a variety of reasons, having a business bank account is a great idea for entrepreneurs that are just starting out, especially if they decide not to set up an LLC right away.
#2 You Will Provide Your EIN to Third Parties (instead of your SSN)
Second, if you are working with any type of payment provider, such as Stripe or Paypal, or are generating income on Etsy or Shopify, or maybe are receiving revenue via Adsense or via any number of Affiliate Products, then chances are you will be asked to supply the entity receiving payments on your behalf with an EIN. And while yes, you can provide a Social Security Number, for privacy and tax reasons this just isn’t a good idea. (It will make it so much easier to file your tax returns if you have a separate bank account and EIN for your business... even if you are a sole proprietor).
When to Apply for an EIN Number
If you are operating a business in the United States, it is good practice to obtain an EIN for that business as soon as you are ready to begin operating. As mentioned above, you will need this to obtain a business bank account, so there really is no reason to wait. Obtaining an EIN is free and takes about 15 minutes to get when applying online.
It doesn’t matter if you are operating a sole proprietorship, a Limited Liability Company (LLC) or a Corporation, you can obtain an EIN for any of these business entities.
How Long Does it Take to Receive an EIN Number?
Obtaining an EIN through the IRS website takes about 15 minutes.
International applicants can call (267) 941-1099 (Note that this is NOT a toll-free number).
Alternatively, you can fax a completed Form SS-4 to the service center for your state. The IRS website states that they will send you a return fax in about one week if you include a return fax number and two weeks via mail, but with the current delays at the IRS, I wouldn’t hold your breath.
If you apply by mail, send your completed Form SS-4 at least four to five weeks before you need your EIN to file a tax return or make a deposit.
Bottom line - just apply online. It is the easiest and fastest method to receive your EIN.
What do I Need to Obtain an EIN Number?
Before you apply for an EIN number, you should have several pieces of information.
- The business name of your entity - If you are an LLC, this name should match the approved name of your LLC when you filed your Articles of Organization
- The name of the “responsible party”
- The TIN of the responsible party
- The address of the business where you would like to obtain correspondence from the IRS
With the exception of Pennsylvania, no states require an EIN at the time you file your Articles of Organization.
Pennsylvania requires a “docketing statement” that asks for your EIN. If you are filing an LLC in Pennsylvania, we recommend entering "applied for" in the space where it asks you to fill in your EIN number, and apply for the EIN AFTER you have received your final approval back from the state.
For every other state, you should receive your approved Articles of Organization back from the state BEFORE you apply for your EIN.
What is a Responsible Party?
The responsible party for purposes of the EIN application is a third party designee in the eyes of the IRS. This is the “true principal officer, general partner, grantor, owner or trustor” of the business entity. The name and TIN of this individual must be disclosed on the EIN application. According to the IRS, this person controls, manages, and/or directs the applicant entity and the disposition of its funds and assets. The responsible party must be an individual (i.e., a natural person), and not an entity (unless it is a government entity).
If there is more than one responsible party (i.e. in the case of a partnership or multi-member LLC), the applying entity may list whichever party the entity type wants the IRS to recognize as the responsible party.
What is IRS Form SS-4?
The Form SS-4 is also known as the “Application for Employer Identification Number”. This is the actual form you will use if you are applying for your EIN by fax or mail.
You do not need to use this form if you are applying for your EIN online.
Common Mistakes when Applying for an EIN
Although applying for an EIN is not a terribly difficult process, there are a number of mistakes I see people make when they are applying.
Not saving the EIN after you receive it
After you submit your online EIN application, you will be provided with an IRS notice immediately that contains your EIN. Many people inadvertently think that the IRS will mail or email a copy of this document.
But in truth, this is the ONLY opportunity to obtain your EIN. So when you apply online, make sure you save this document to your computer and/or print it out and keep it in a safe place.
Recommended Resource: Business Binder
This is the only correspondence you will receive from the IRS when you submit your SS-4 online.
Applying Online when you Aren’t Eligible
If you are a US resident and already have a TIN, then you should not have any problems applying for your EIN.
But if you live abroad and do NOT have a TIN, then you must use the procedures below under “international applicants” to apply for your EIN.
Applying Before You Obtain Your LLC
We highly recommend you form your LLC or Corporation BEFORE you apply for an EIN. But some people disregard this warning and apply first anyway.
The problem here is that you are applying for an entity that doesn’t yet exist, and which may never exist if the state declines your filing for whatever reason.
So we recommend that you wait until you have your file-stamped Articles of Organization in hand before applying for your EIN.
What if you are an International Applicant?
If you have an ITIN and are an international applicant, then you may use the online application process to obtain your EIN.
If, however, you do NOT have an ITIN, then you must obtain one first before applying for an EIN on behalf of your business entity.
What is the Online Application Process?
Preparing an application for an EIN is a fairly straightforward process.
First, click here to visit the online form.
Note that you must complete the application in one session. You are not able to save and return to your application at a later time. In addition, your session will expire after 15 minutes of inactivity. If it times out, you will need to start over.
Once you finish your application, you will receive your EIN immediately. At this point, you will have the option to download, save, and/or print your EIN confirmation notice.
Not Legal Advice
I realize it goes without saying, but One Stop Legal is not a law firm, and no attorney-client relationship is formed just because you have read this post. This post is for informational purposes only, and if you require additional legal support or advice you may click here to schedule a strategy session with a lawyer from The Hart Law Firm, P.A.
If you require additional legal expertise or legal resources, please contact our sister law firm for help negotiating your contracts or for assistance with any of your business related legal needs. Stop worrying about the legal stuff and hire a business lawyer instead.