What is an Employer Identification Number (EIN)?
An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to businesses operating in the United States. It is used to identify a business entity and is essential for various administrative purposes, such as filing taxes, opening a business bank account, and paying employees. Essentially, it serves as a Social Security number for businesses.
Why Do Businesses Need an EIN?
Obtaining an EIN is crucial for several aspects of business operations and compliance with federal regulations:
- Tax Administration: An EIN is required for filing business tax returns and other related documents with the IRS.
- Employee Payments: Businesses that hire employees must have an EIN to set up payroll and ensure proper tax withholdings and filings.
- Banking: Most banks require an EIN to open a business bank account, which helps in managing finances separately from personal accounts.
- Legal: It’s often necessary for acquiring local permits and licenses needed to operate legally within a city or state.
How to Apply for an EIN?
Applying for an EIN is a straightforward process that can be completed online, by mail, or by fax:
Online Application
The fastest way to obtain an EIN is through the IRS website. The online application is available to all entities whose principal business is located in the U.S. or U.S. Territories. The application must be completed in one session and takes about 15 minutes to complete. Once submitted, the EIN is issued immediately.
Application by Mail or Fax
If you prefer not to apply online, you can also apply by sending a completed Form SS-4 to the IRS. This method takes longer; receiving an EIN by mail can take up to four weeks, while fax applications are processed within four business days.
Can I Cancel or Change My EIN?
Once an EIN has been assigned to a business entity, it becomes the permanent Federal Taxpayer Identification Number for that entity and cannot be canceled. However, certain changes in business structure or ownership may require obtaining a new EIN. Here are a few circumstances in which a new EIN is needed:
- Change in ownership or structure (e.g., sole proprietorship to a corporation)
- Creation of a new corporation or partnership
- A trustee takes over a trust
Common Issues and Solutions With EIN
Lost or Forgotten EIN
If you lose or forget your EIN, you can find it in previous tax filings or contact the IRS directly to retrieve it. It is advisable to keep this number safe as you would with other sensitive information.
Receiving EIN Errors
If there are issues with your EIN application, such as input errors or system errors during processing, contacting IRS support or revisiting your application for potential mistakes is the best course of action. Often, simple data entry errors are the cause of EIN issues.
HR Responsibilities Regarding EIN
In a human resources context, ensuring that the company’s EIN is correctly used and managed is crucial. This responsibility includes:
- Maintaining accurate records of the EIN and any related business entity information.
- Using the EIN for all employment tax reports and documentation.
- Ensuring that the EIN is communicated securely and only when necessary.
In conclusion, an Employer Identification Number is a vital component for any business, facilitating not just compliance with tax laws but also enhancing the efficiency of various business operations involving finances and employee management. Understanding its use and importance can significantly benefit business owners and HR professionals alike.