Commonly Asked Questions About EINs
As you’re working with clients who are starting or making entity changes to their businesses, the topic of Employer Identification Numbers (EINs) is bound to enter your conversations. This post addresses some of the questions business owners might ask about EIN and sheds light on some gray areas that they might be struggling to understand.
Answers to Seven Common EIN Questions You Might Hear From Your Clients
1. What is an EIN?
An Employer Identification Number is a unique nine-digit number that identifies a tax-paying business entity. Alternate names for an EIN include “Federal Tax ID Number” or “Tax ID Number.”
2. What is an EIN used for?
Issued by the IRS, an EIN’s primary purpose is for federal tax reporting and filing. Also, most banks will require an EIN before opening a business bank account.
3. Do I need an EIN?
Most businesses need to obtain an EIN. As I mentioned before, banks will typically ask for a business’s EIN before setting up accounts for a company. According to the IRS website, situations requiring an EIN include:
- You started a new business
- You hired or will hire employees
- Your bank requires an EIN for banking purposes
- You formed a partnership or corporation
- You change the legal structure or ownership of your organization (such as changing from a sole proprietorship to a partnership or corporation)
- You bought an existing business
- After a business owner’s death, you represent an estate that operates the business.
Note that when changing an entity type, the need for a new EIN will depend on how the state where the business is registered handles things. Generally, in states that allow conversion from one business structure to another, a company can keep its original EIN and need only update the IRS via a letter to notify them of the change. In states that do not offer the conversion option, then the business needs to be dissolved as its present entity and formed as a brand new one, which will need a new EIN.
Other instances require an EIN, too, so be sure to visit the IRS site to learn about all of the circumstances that call for an EIN.
4. How do you get an EIN?
It’s relatively simple to apply for an EIN. The IRS has an easy-to-follow online application—"available for all entities whose principal business, office or agency, or legal residence (in the case of an individual), is located in the United States or U.S. Territories." Business owners who would prefer to have someone familiar with the process handle it for them may want to consider enlisting the help of an online business filing service.
Alternate ways to apply for an EIN include completing Form SS-4 and sending it to the IRS via fax or mail. International applicants may request an EIN by phone.
5. Who can order an EIN?
An individual (with a valid SSN or ITN) serving as the business’s “responsible party” may order an EIN.
According to the IRS, the responsible party “controls, manages, or directs the applicant entity and the disposition of its funds and assets” for the company. Note that the only instance in which the responsible party can be an entity rather than an individual is if the applicant is a government entity.
Foreign filers without an SSN or ITIN must request an EIN by phone.
6. How much will an EIN cost?
The IRS issues EINs for free. Businesses that request a third party to apply on their behalf will likely be charged a small fee from the company they ask to handle the process for them.
7. How long does it take to get an EIN from the IRS?
When ordered online, an EIN will be issued immediately (if the application is approved). EINs requested by fax are typically ready in approximately one week (if the applicant provides a return fax number). EINs requested by mail may take four to five weeks.
Your clients should keep these intervals in mind, so they order their EINs before they need to open a bank account or file taxes and reports.
Where to Turn When in Doubt
As your clients' tax advisor, guide them using your expertise and experience. However, if you're not sure about any of the whens, wheres, hows, and whys of EINs, you can find extensive details on the IRS website. Also, consider reaching out to the IRS by phone when unclear about the rules and requirements.
Nellie Akalp is a passionate entrepreneur, small business expert and mother of four. She is the CEO of CorpNet.com, a trusted resource for Business Incorporation, LLC Filings, and Corporate Compliance Services in all 50 states. Nellie and her team recently launched a partner program for accountants, bookkeepers, CPAs, and other professionals to help them streamline the business incorporation and compliance process for their clients. More info at: CorpNet.com/partners