I am about to tell you about the LLC Formations EIN number. As a business owner, whether a sole proprietorship, a partnership, or an LLC, one of the first steps that you must take is to obtain an employer identification number (EIN) and this is also known as a Federal Tax Identification Number. If not, you may encounter questions concerning your business’ legitimacy, especially by government agencies. Moreso, in order to file your federal taxes or to even hire employees, the IRS requires certain businesses to have an IRS EIN number.
Employer Identification Number (EIN) Meaning
EIN is a nine-digit code that is issued to a business owner by the Internal Revenue Service (IRS) to identify your business. Just like being issued a Social Security Number (SSN) for your business, except it helps establish your businesses’ identity as a legal U.S. entity similar to how a social security number is used to establish an individual’s U.S. citizenship, such as when applying for a passport or federal student loans.
Just as similar to an individual taxpayer identification number (ITIN), it can be used to keep track of your business’s contributions for tax purposes (including information like your federal income tax payments) just like social security numbers and other tax identification numbers; however, there are a few marked differences.
EIN is used to establish business identification on a federal level; however, there is also a state tax identification number, which is used to identify businesses on the state level. In fact, if your business has employees, provides services, offers goods, or has an income in a state, then you will most likely also need to apply for a state tax identification number in the state where your business operates for state identification purposes as well as to pay state taxes.
Purpose of EIN
Though all business entities can benefit from an EIN, there are times when an EIN is required by the IRS, including if your business has employees or if the business has its own existence separate from you. You also need an EIN when at least one of the following points applies to you:
- Single-owner business with employees business
- A partnership business
- A single-member LLC business
- A multiple-member LLC business
- An LLC taxed as a corporation business
- Estates, trusts, employee plans, and the like business type
- A business that manages and reports payroll taxes
- Changing of your business from a sole proprietorship to another type of business
When DON’T you need an EIN? For non-profits and charity groups, an EIN is not necessary. Instead, you should obtain an IRS Determination Letter that proves your organization has been granted tax-exempt status by the IRS.
EINs vs SSN
An SSN is often used to report employees’ year-end income by their employers, which can then be used by employees to prepare their personal income tax returns. However, it can also be used by single business owners for business identification and tax purposes, as opposed to an EIN.
EINs vs ITIN
The IRS also issues an Individual Taxpayer Identification Number (ITIN) to handle payments and tax forms; however, they differ from employer identification numbers in that they are only issued to individuals who can neither receive an EIN or a social security number, such as the husband, wife, or dependent of a U.S. citizen, U.S. resident aliens, and non-resident aliens. ITIN also differs from an EIN in that it is only used for tax return purposes and not identification purposes, so it can’t be used to establish credibility. Additionally, an ITIN can be issued on either the state or federal level, but an EIN is strictly a federal tax number. Just remember, if you need something for federal tax purposes, you are required to have an employer identification number.