# Understanding the Employer Identification Number (EIN)
Sanket Garg, EA
US LLC, C-Corp, Form 5471, 5472 l Virtual CFO l IBBI Registered Valuer l Incorporation l Taxation l India Entry Specialist l Financial Reporting l IFRS l Assisted US, Europe, Hong Kong, Singapore Israel Clients
When starting a business, one important step is obtaining an Employer Identification Number (EIN). This number is issued by the IRS and plays a significant role in running a business. Let’s dive into what an EIN is, its purpose, and how to apply for one.
#### What is an Employer Identification Number (EIN)?
An EIN is a unique nine-digit number that identifies a business entity. Think of it as a Social Security number for your business. By using this number, the IRS can track your business for tax purposes.
#### When Do You Need an EIN?
You need an EIN under several situations, including:
- If you have employees.
- If your business is a partnership or corporation.
- If you file certain tax returns or operate specific types of businesses, such as trusts, estates, or nonprofits.
According to the IRS, “an EIN is also required for certain business activities, like those that involve hiring employees or crossing state lines.”
#### Why is an EIN Important?
An EIN has several key uses, including:
- Tax Purposes: The IRS needs your EIN to process the business’s tax returns and payments.
- Opening Business Accounts: Banks usually require an EIN to open a business bank account.
- Employer Obligations: If you hire employees, you must use your EIN for payroll and tax reporting.
- Obtaining Business Licenses: Many licenses require an EIN as part of the application process.
In essence, having an EIN can separate your personal finances from your business finances, helping you maintain clearer financial records.
#### How to Obtain an EIN
Applying for an EIN is a fairly straightforward process. Here’s how to do it:
1. Determine Eligibility: You must have a valid Taxpayer Identification Number (SSN, ITIN, or EIN) to apply for an EIN.
2. Go to the IRS Website: The form is available on the IRS website. You can submit your application online.
3. Complete the Form: The EIN application (Form SS-4) will ask for the following information:
- Name of the business and owners.
- Business structure (e.g., LLC, corporation, etc.).
- Reason for applying.
4. Submit Your Application: Once completed, you can submit the form online, fax it, or send it via mail.
5. Receive Your EIN: If you apply online, you can obtain your EIN immediately upon completion.