The Employer Identification Number (EIN) refers to a distinct number that the IRS uses to identify local businesses in the United States. This nine-digit number is also known as Federal Employer Identification Number or Federal Tax Identification Number. You can apply for the EIN through email, fax, online or by telephone for international business owners. When applying for the EIN, you are required to fill out an SS4 form accurately. You also need to identify third-party designee, who should be a taxpayer, to fill out and sign a section on the form.
In addition, you are required to identify a responsible party who controls, manages or directs the applicant entity and disposition of its funds and assets. The responsible party you select will be notified once your EIN is processed. Most businesses need the EIN but some do not.
Here are four reasons why you should get an employer identification number for your business:
Opening a bank account
EIN is important for your business in the United States especially when you want to open a bank account for the business. Most banks require you to provide the EIN from the IRS to open an account. Not only do you need the EIN to open a bank account, you also need it when applying for a loan for your business from any bank or through the Small Business Association.
Filing electronic tax returns and payments
An EIN is used as an identifier while making federal tax payments which are made electronically using the federal tax filing system. Additionally, in some states, you will need an EIN to file state taxes. An EIN is also important if you want your business to be taxed as a corporation, partnership or limited liability company. Filing the employee taxes, excise taxes, or tobacco, alcohol or firearm tax returns from your business will require that your business has an EIN. Finally, if you have employees who are non-resident aliens in your business and you withhold taxes on their income, you will definitely need the EIN.
Applying for a business license
Starting a small business involves a number of processes, one of which consists of registering your business and acquiring a license or permit. In the United States, most businesses are registered in their respective local counties and follow the specific regulations set by that county. Each state has its own website that outlines requirements for business registration and provides helpful resources to help in the process. It is important to get an EIN number in order to acquire a business license.
Another reason you should have an EIN number for your business is to organize a Keogh plan. This refers to a retirement plan for self-employed people in the United States. However, the term is currently used less frequently since the law no longer distinguishes between corporate and other plan sponsors. However, for you to apply for such a retirement plan it is important to have the EIN.