If you are starting an LLC you probably have heard the word EIN. It feels like just a small detail, but it is actually kinda a big role. A lot of new owners are not sure they need one, or how to get one in the right way. Some owners even mix it up with a personal identification number, and then later there are annoying mix ups. This short guide will explain everything in simple words so that you can actually understand it. By the end of the article, you will have an idea of what an EIN is, why you need it, and if you need one for your LLC.
What Does EIN Stand For?
EIN meaning Employer Identification Number. The IRS assigns this code to businesses. Basically it functions like an ID label for your company. Even if you do not have employees, your business can still apply for an EIN. The wording can feel a bit off, because it says “employer,” but you do not have to have workers to qualify. Think of it as a method the government uses to identify your business for tax related tracking.
Why an EIN Matters for Your Business
An EIN is critical for several reasons. First of all, it can increase the level of professionalism of your business. Having an EIN makes you appear more credible to financial institutions, partners, and consumers. Moreover, it is necessary to open a bank account for your company. In addition, having your EIN helps to separate the business and personal spheres and avoid giving out your social security number.
How an EIN Is Different From a Social Security Number
You cannot confuse EIN with a social security number, as they serve a different purpose. A social security number is assigned to a person for his or her lifetime. An EIN is assigned to a business. Unlike a social security number, an EIN never changes, even if the ownership structure of your business changes. This characteristic is especially important for multi member LLCs. If you sell your business or add a new member to your ownership structure, your EIN will remain the same.
Does Every LLC Need an EIN?
The issue of EIN applicability to single member LLCs is one of the most common questions among entrepreneurs starting their own business. According to the law, an EIN is not required if you run a single member LLC without employees.
Single Member LLCs
In most cases, single member LLCs can use the owner's social security number instead of an EIN in all official and financial documents. Nevertheless, there are some reasons why you may need to apply for an EIN anyway. For example, if you want to open a bank account for your business, the bank may refuse to provide the services if you try to write your SSN instead of an EIN. In addition, even though the owner of a single member LLC is not personally liable for the debts of the company, it is safer to have an EIN to protect private assets.
Multi Member LLCs
By contrast, any multi member LLCs must have an EIN regardless of other factors. The reason for this is that the IRS treats this type of LLC as a partnership. A partnership, like any other organization, requires an EIN to register for tax purposes.
LLCs With Employees
If you have an LLC with employees, it must also have an EIN. This information is necessary to calculate their taxes and pay income tax to the government. An EIN is mandatory to pay any employees, which includes part time workers.
When You Must Have an EIN
Even if an EIN is not mandatory for your LLC type, it may be needed for specific reasons. Here are some cases when you must have an EIN for your LLC.
Opening a Bank Account
An EIN is necessary to open a business account for your LLC. Most financial institutions require this information to verify a company's legitimacy. For single-member LLCs, a bank may accept a social security number as an alternative to an EIN.
Filing Taxes and Choosing S-Corp Status
To register your LLC as an S-Corp, you will need an EIN. An S-Corp status election is important for some business owners since it is beneficial for tax purposes. Choosing this option is a way to reduce the amount of money paid to taxes.
Hiring Employees
As mentioned above, an EIN is mandatory to pay any employees. This requirement applies to all types of LLCs, including single member entities. It is critical to have this information even if you only have one part time worker.
How to Apply for an EIN
You can apply for an EIN in several ways.
If You Live in the United States
If you are a U.S. resident with a social security number, you can apply for an EIN online. The process will take only a few minutes. You will receive the number right away, and there is also no registration fee. By contrast, there are websites that promise to help you get an EIN faster for a fee. Do not use them since the process is free of charge.
If You Live Outside the United States
If you are a non resident and do not have a SSN, you may not be able to apply for an EIN online. In this case, there are two ways to apply: by fax or by phone. The first option is to fill out the application form and fax it to the appropriate number. In most cases, it takes about 4-6 weeks for a response. The second method is to call the IRS and apply over the phone. Using this method, you may receive an EIN the same day if you have all the necessary information.
Applying by Fax
You can apply by fax, and it usually takes around four to six weeks for the IRS to send you your EIN.
Applying by Phone
By phone, you can apply to the IRS international office and, if you have all of the required information, obtain your EIN on the same day. It is a faster method, but only available to non resident aliens.
What Information You Need Before You Apply
Before you begin the application, collect a few basic items. You will want your LLC’s exact legal name and mailing address. You also need the name of the applicant, also called the responsible party. If that person has a social security number, they should put it in the appropriate spot. If they do not have one, they can enter “Foreign” or “N/A” for that field. You will also need a brief reason for why you are filing, like launching a fresh business.
How Long Does It Take to Get an EIN?
For most people living in the U.S., the online process is quick, usually only a few minutes. After you submit the form, the number typically shows up right on the screen. If you are applying from outside the U.S. and use fax, it often takes about four to six weeks. Applying by phone can sometimes deliver the EIN the same day, so it’s a lot quicker than fax, and less waiting around.
Common Mistakes When Applying for an EIN
There are common mistakes that new business owners tend to make when applying for an EIN. One of them is trying to apply for an EIN through a website that charges you for services. In reality, you can apply for an EIN directly through the IRS for free. Another error is trying to apply for an EIN before registering your LLC. Remember, you can apply for an EIN only after your Articles of Organization have been approved by your state. Some business owners forget to save the confirmation letter from the IRS, which they will need when opening a bank account for their LLC. Some people also try to apply for a second EIN when they misplace their original one.
Final Thoughts
An EIN seems like a fairly insignificant detail in running an LLC, but in reality, it has several essential functions. This information allows you to separate personal and business needs, which is critical to maintaining the limited liability of an LLC. For most entrepreneurs who run single member LLCs without employees, an EIN is not mandatory. However, it can be helpful if you want to open a bank account with your LLC or hire any employees. An EIN is required in any other type of multi member LLC. In most cases, applying for an EIN is a quick and convenient process. If you are unsure which option is the best for your LLC, consult a tax professional.
FAQs:
1. Is an EIN the same as a social security number?
An EIN is a business equivalent to an individual’s social security number. Unlike a regular social security number, which is permanent and issued only once to every citizen, an EIN is tied to a specific business structure.
2. Do single member LLCs need an EIN?
You do not need to apply for an EIN for your single member LLC, as you can use your social security number instead. However, most experts advise against doing so, as having an EIN makes it easier to open a bank account for your LLC.
3. Is there a fee to get an EIN?
If your LLC hires employees, then yes, it needs an EIN. Also, you will need an EIN for tax registration and related paperwork, basically.
4. How fast can I get an EIN?
If you are a U.S. resident, you can get an EIN right away. If you are a non resident alien, you may need to apply by fax, which will take around four to six weeks. Alternatively, you can apply by phone and get an EIN on the same day.
5. Can I apply for an EIN before my LLC is approved?
No, you cannot apply for an EIN before your LLC is approved. You need to obtain an EIN after you register your LLC with the state.