Last Updated: February 16, 2024, 1:55 pm by TRUiC Team

Obtaining an Employer Identification Number (EIN)

Ch2. 07

Chapter 2.07 demystifies the process of obtaining an Employer Identification Number (EIN) for your business. Learn about the importance of an EIN, why it's not just for employers, and the practical benefits of having one. We'll walk you through the application process on the IRS website, providing detailed guidance at each step.

This video is part of the free Small Business Startup Course designed to help walk you through the entire process of business formation from idea to launch.

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Applying for an EIN: A Step-by-Step Walkthrough

In this section, we take you through the process of applying for an EIN from the IRS. From choosing your business structure and providing your business details to answering IRS-specific questions and submitting the application, we provide a clear, concise guide to help you obtain this vital identifier for your business.

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Obtaining an Employer Identification Number (EIN) – Transcript

We're finishing up our section in this small business entrepreneur course showing you everything that you need to do to create a legal business entity for your business, and one of the final steps in getting your business set up is to request an Employer Identification Number from the IRS. 

This is a relatively straightforward process, but we wanted to go ahead and show you exactly how it works, which is what we're going to be doing in this video. 

Hey everybody, Will Scheren here from Small Business Startup Guide by TRUiC. This video is part of a larger course dedicated to helping small business owners cut through the noise and get to the essentials of starting and operating their business. If that sounds like it would be really useful to you, be sure to like and subscribe. 

So what is an EIN exactly? Simply put, an EIN is like a Social Security number for your business. What EIN actually stands for is “Employer Identification Number.” As the name implies, an EIN is a number that the IRS uses to identify businesses from one another. You can also find it called an FEIN because someone decided that they want the word “federal” in front of it, or it can be referenced as your business's “tax identification number.” 

When it comes to EINs, the key word is “employer.” If your business has or is going to have employees, you're going to need an EIN. Additionally, any business that is a partnership, multi-member LLC, or corporation has to have an EIN for tax purposes. 

While this technically means that businesses that are either sole proprietorships or single-member LLCs without employees can function without an EIN, there are plenty of reasons that these businesses should file for an EIN as well. 

First, all banks will require you to have an EIN before opening a business bank account, and a separate bank account for your business is something that you're going to want. A business bank account makes it easier to track what is and is not a business expense, and it lets your business build credit and qualify for more loans. 

On that note, your EIN can help you get a corporate credit card. Depending on your personal credit, you might be able to get a low-end corporate credit card right away. The combination of a business bank account and a corporate credit card means that you will have your company's revenue and expenses separated from your personal assets. This will make your accountant very happy. 

Second, as we mentioned before, if you want employees, you're going to need an EIN. Getting any in early on lets you prepare for the future. Third, having an EIN can make your business appear more credible. Businesses often prefer to work with other businesses rather than just a person doing something on their own. One thing that you'll be required to do if you work with other companies is provided W-9, which requires an EIN. And finally, having an EIN helps you maintain separation between what is yours personally and what belongs to the business. 

Now, knowing all the reasons to have an EIN won't do you any good if you don't know how to get one. But fortunately, applying for an EIN is easy and free. You do so through the IRS website, and it can be done in about five minutes. But remember, you're only able to use the IRS portal between the hours of 7:00 a.m. and 10:00 p.m. Eastern Standard Time. We provided a link below this video where you can get direct access to the web page on the IRS website that allows you to get an EIA number. 

To begin, the first thing that the IRS is going to ask you is what type of legal structure you're choosing for your business. They give you ten options on the first page. For the process of this video, though, we're going to keep it simple and stick to running you through the process of getting an EIN for an LLC. 

If you need to file for another entity type, by watching the LLC video, you'll be able to get an idea and also have insight into what other information you'll need for every other business type as well. 

After you've selected “limited liability company” for your business structure, you'll need to fill in some basic details for your LLC. You'll have to select the state that your business is physically located in and how many members your LLC is going to have. This is actually because a single-member LLC behaves differently than a multi-member LLC, at least in the eyes of the IRS, because limited liability companies have what are known as default tax statutes, and these are different for single-member LLCs and multi-member LLCs. 

A single-member LLC by default is taxed as a disregarded entity and a multi-member LLC by default is taxed as a partnership. Besides these default elections of disregarded entity and partnership, there are two other elections that you can choose: an S corporation and a C corporation. 

Briefly, an S corporation will help you reduce the amount of self-employment taxes that you'll have to pay. You would select an S corporation if you're going to make a sufficient amount of profit and if you’ll be taking all of that profit out of the LLC each year and not reinvesting. 

On the other hand, you would choose a C corporation if you planned to raise money from professional investors and reinvest income back into the company. But remember, both of these options require more paperwork and maintenance and have increased associated costs. 

For most people, the default elections probably are best. You and any other members of your LLC will pay taxes on your own personal tax return, and you can always elect to change your tax status later. 

Then you'll be asked to put in the managing member information for the managing member that's filing the form. 

Next, you'll be asked to click on an option for why you're getting an EIN in the first place, you'll have five options. One, because you're starting a new business. Two, because you've hired employees. Three, for banking purposes. Four, because you're changing the type of your organization, or five, because you've purchased an active business. Most people will choose it's because they've hired new employees or for banking purposes. 

Then you'll be asked to list the primary activity for your business that you're applying to get an EIN number for. Select any of the activities listed if they describe your business, otherwise, select other. 

Next, you'll be asked to say "Yes" or "No" to some rather specific questions. Namely, does your business accept credit card payments? Plan to pay employees via payroll? Involve using a truck over 55,000 lbs? Does your company involve gambling? Selling or manufacturing alcohol, tobacco, and firearms? Have you ever applied or received an EIN number before? And finally, the one relevant to most of the people trying to get an EIN, are you, in the next year, going to have employees that you will need to have W-2s for? 

Believe it or not, that last question is the only one that will get you more questions from the IRS. If you select "Yes," you'll be asked to estimate to the best of your ability if your employment tax liability will be less than $1,000 in a calendar year. 

If you select "Yes" for this screen, you'll be asked if you want to file employment tax annually instead of quarterly. You can ask your accountant if they have a preference here, but most select "No." Then you'll be asked how many agricultural, household, and other employees you think you'll have and the date that you did or expect to start paying these employees. 

Then, you'll need to list out a physical address for your business. P.O. boxes will not be accepted, If you've hired a registered agent for your business, when you're asked if you would like to receive mail and another address, select "Yes" and provide the address for your registered agent. Otherwise, select "No." Then provide the date in which your business entity was started or acquired. This would be the day that you received registration papers back from your state filing. 

And finally, provide a phone number and email address where you can be reached. Now, I know this seems like a lot, but I can assure you, having gone through this process many times myself, you can actually get all of this information filled out really quickly. The IRS actually does a really good job of making this process go smoothly after submitting your application, you’ll review your application submission, and as long as there aren't any issues, you receive yours immediately. Be sure to record this somewhere, somewhere that you'll not lose it, as you'll need it frequently as you conduct business. 

So that explains how to get an EIN number for your business after registering it with your state. Likely, the next thing you want to do after getting an EIN number is head to the bank and set up a business bank account, and start setting up some back office essentials for your business, which is exactly what we'll be talking about in the next section of the course. 

This video is part of a step-by-step course that provides all of the essential information for business owners to start and operate their business. We've provided a link below this video for you to get access to all of the free and discounted business tools that we mentioned in this course. 

Be sure to like and subscribe to get more of this content. We'll see you in the next section of the course, and if you have any questions, let us know.