If you are an employer, chances are that you're familiar with the term Employer EIN number, or Employment Identification Number. This is a set of unique digits given to a company for purposes of tax returns and IRS requirements. Once a number has been issued to a particular business, it will give the federal government a way to recognize that business on any tax related documents.
In simple terms, just as your social security number works to identify you as an individual when you're applying for a loan or credit, your employer EIN Number does the same for a business. As a result, it is important for every business within the United States to obtain an EIN.
When Do You Need an EIN?
Knowing when you need an Employer EIN number can help to ensure that you remain compliant with crucial tax laws. For example, you will need an EIN if you:
File tax returns for employment.
Operate a business as a partnership or corporation
Withhold taxes on income
Are involved with a trust, IRA, or other relevant organizations.
The IRS uses your EIN as a way of identifying you on your tax returns. Employers, corporations, partnerships, non-profit organizations, trusts, estates of decedents, certain individuals and government agencies all use EINs in documentation. This specific number helps to ensure that a taxpayer's information is properly stored within their files, so that the correct refunds and payments can be applied to their name.
How to Get an EIN
Since there are so many things to consider when opening a new business, the process of an obtaining an EIN can seem somewhat daunting. However, the truth is that it is much easier to get your identification number than you might think. All you need to do is fill out a few online forms and you should be ready to have your EIN mailed to you by the IRS.
Changes to your business can mean that you need to file for a new EIN. For example, you will be required to obtain an employer identification number if you decide to restructure your business, for instance, changing from a sole proprietorship to a corporation. Even though you may already have an EIN as a sole proprietor, you will need to obtain a new number because of the change.
Understanding Your EIN
Although most people who choose to open a business themselves or start working for themselves on a self-employed basis understand that they will need an EIN, there is a lot of miscommunication regarding the regulations of EIN numbers. For example, you may need to obtain an EIN even if you're not running a business, depending on your personal circumstances. For example, if you hire one or more babysitters, caregivers, housekeepers, or drivers in a domestic arrangement, then you will need an EIN to be able to complete the relevant taxes associated with being a domestic employer.
In other words, even though you are not necessarily running a business for profit, you will still be recognized as an employer in need of an employment identification number.