Every U.S. business is required by the IRS to have an Employer Identification Number (EIN).
As explained in one of our earlier posts, an Employer Identification Number (EIN) is a number assigned by the Internal Revenue Service.
Think of an EIN as a Social Security Number for your business. Just as a social security number is important for U.S. citizens to have, an EIN is necessary for a business to lawfully conduct business activities in United States.
Having an EIN is crucial for your business.
Here are the top 10 things you can do with your Employer Identification Number (EIN):
1. Opening a U.S. Bank Account
Any business that needs to open a bank account will require an Employer Identification Number (EIN). Your bank will use the EIN to confirm with the tax authority the legitimacy of your firm.
Once you have an EIN, your bank account can be opened anywhere in the world. Typically, U.S. banks will need someone to show up in person, with formation documents, and EIN for the company.
Each bank has different policies for dealing with businesses with foreign ownership. If you intend to travel to the state of incorporation to open up a bank account, make sure to bring all necessary documents including: your EIN letter, certificate of incorporation, and two pieces of photo identification.
Also, generally, you can go to a US bank that also has locations locally for assistance in opening the US bank account.
2. Applying for Business Permits
If you need to apply and get business permits for your business, you will need an EIN.
Before you open your doors for business, you also need to apply and get the necessary licenses and permits you need to operate your business.
Virtually every business needs some form of license or permit to operate legally. These may include business licenses, seller’s permit, or a zoning permit, among many others.
Licenses and permits vary by the type of business you operate and where your business is located. Every business needs a basic operating license or permit – even if you’re home-based.
3. Filing Tax Returns
Depending on the type of information you’ll provide when applying for an EIN, such as anticipation to hire employees, the IRS system will automatically enroll you into the Electronic Federal Tax Payment System (EFTPS), enabling you to make deposits either by phone or online.
If you are looking to file your tax returns but do not qualify for a Social Security Number (SSN), you may need an ITIN.
Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the IRS for federal tax reporting only and is not meant to be used for any other purpose. ITIN is used on federal tax documents to file taxes.
IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to get a Social Security Number (SSN).
EIN application is typically much easier and only takes 5 days to get it. On the other hand, ITIN is a lot more complicated application and requires a copy of your federal income tax return, and it takes 6 to 7 weeks to receive it.
Make sure to know whether you need an Employer Identification Number (EIN) or Tax Identification Number (ITIN)
4. Hiring Employees
You cannot hire employees if your business does not have an Employee Identification Number (EIN). Employers must have an EIN for reporting and paying federal and state unemployment and payroll taxes.
Your employees will need to register with the social security scheme and for that to happen, they will be required to provide your EIN.
5. You Need an EIN If You Have an LLC, Corporation, Or Partnership
In order to run your business as a Limited Liability Company (LLC), Corporation, or partnership, you will need to get an EIN.
The Internal Revenue Service (IRS) requires all LLCs, Corporations, and Partnerships to have an EIN to lawfully conduct business in United States.
6. To Withhold Taxes On Income Other Than Wages
In order to fulfill the requirements of an employer who can withhold certain taxes on income, you must have an Employer Identification Number. That will enable you to file the relevant taxes to the tax authority as required.
7. To Operate A Keogh Plan
This is a tax deferred pension scheme that is available to persons who are self-employed or even businesses that are not registered but want to establish a retirement scheme.
This plan can be a defined benefit scheme or a defined contribution scheme as desired by the company.
8. Apply For A Credit Card In The Name Of Your Business
No business in United States can be issued with a credit card without having obtained an Employer Identification Number (EIN).
9. Applying for Loans
If you are looking to apply and get a loan, most institutions will require you to have an EIN.
10. Creating a Trust, Estate, or Non-Profit
If you are forming a Trust, and Estates and Non-Profit Organization, the IRS will require you to have an EIN.
How to Get an Employer Identification Number (EIN) (Tax ID)
If you have a U.S. Social Security Number (SSN), you may apply for your EIN from the IRS here.