Do I need an EIN for my LLC?

What is an EIN number?

The Employment Identification Number (EIN) is a nine-digit number used by the Internal Revenue Service (IRS) and entrepreneurs to help identify a business entity. If you own a Limited Liability Company (LLC), or a single-member LLC, you don’t need an EIN, but an EIN makes it easier to facilitate your business needs, especially when you file taxes.

If your business is a single-member LLC and you need to file a tax return, you’ll need an EIN. An EIN is used to track your company’s tax returns. You may also use the federal tax identification number (tax ID number) that refers to your EIN.

When a business acquires an EIN, it becomes a legal and financial entity, making it easier to apply for loans and bank accounts. When you purchase or inherit a business, you operate as the sole proprietor. Your EIN ensures that federal and state tax laws are observed, and these laws depend on your business structure.

Importance of an EIN

• An EIN may be used to open a business banking account
• Used to separate the personal and business finances of a company
• Ensures a business is filing taxes correctly
• Maximizes the tax-deductible business expenses
• Helps build credit through business credit cards, loans, and lines of credit

How to apply for an EIN 

You need to apply for an EIN when you start a business. You can apply through the IRS or LLC formation services. The process is easy, and there are no fees.

IRS  

The first step is ensuring your eligibility for an EIN. You need to prove your business is in the United States (U.S.), and have valid taxpayer identification such as a Social Security Number (SSN). The online application ensures the business maintains its tax liability under the state statute and applies to a new business for self-employed persons. The taxpayer identification number is essential and is also known as the federal tax identification number. You don’t need to be the business owner to apply for an EIN - the applicant could be a partner or an officer in the company. Secretaries can apply as long as the person responsible signs Form SS-4 and fills the third-party designee section. 

The next step is gathering information, like reviewing the PDF version of Form SS-4. This is the Application for Employer Identification Number form. If the business entity is a company, record the information. If it’s a corporation, note down the state in which the business is incorporated. If the business is a multi-member LLC, ensure their numbers, addresses, and names are indicated. 

You also need to provide:

• The reason for applying
• The date the business started
• The purpose of the business 
• The number of employees 
• The first date of wages paid 
• If you want to file an annual employer tax return

You can apply for an EIN online, by mail, or by fax. Oversea applicants who wish to migrate to the U.S. can apply by phone. The online IRS application allows an applicant to receive the EIN instantly. Fax applications take four days, while mail applications take four weeks. 

LLC formation services

LLC formation services are similar to the IRS application but there is a small fee because they are doing much of the paperwork for you. They make it easy and fast for you to apply for an EIN, and you have instant access to your EIN through the formation services’ dashboard. This also makes it simple to recover your EIN if you forget the number.

Choosing the IRS or an LLC formation service is up to your personal preference. If you want a more hands-on approach, the IRS requires you to fill in forms and gather as much information as possible. If you’re looking for something a little easier but more expensive, then an LLC formation service is a good choice.

Changing an EIN

You might come across a situation where you want to change your EIN. A few examples are:

• Buying an existing business
• Converting a business to a different type of business entity (e.g., LLC to corporation)
• An estate takes over business ownership after the death of an owner

Canceling an EIN

The IRS can’t cancel an EIN because it’s a unique permanent identifier for the business entity. Even if the EIN isn’t used or the business fails, the EIN can’t be reassigned, reissued, or reused for any other business. If a business owner decides to stop using the EIN, they request the IRS to close the business account.

Frequently asked questions

What is the difference between an EIN and a tax ID?

Tax identification numbers (tax IDs) are how the IRS tracks individual and business taxes. Tax ID is a generic term that identifies different taxpayers. An EIN is a type of tax ID used specifically for businesses. Just like every adult in the U.S. has an SSN that’s used for tax purposes, every business has an EIN for the same reason. Each tax ID is a unique nine-digit number primarily used to track payments for people in a state. If you plan to hire employees, you’ll need an EIN. Businesses and individuals pay different tax rates, so tax IDs are one way the IRS likes to separate the two.

When do I need a new EIN?

Usually you need a new EIN when your business structure or ownership changes, but not when you change the name. Changing your business name does require certain actions and protocols, so it’s best to go to the IRS website and visit the Business Name Change page and follow the guidelines. Applying for a new EIN is similar to applying for your first: fill out the business entity, number of employees, reason for applying, and the company vision for the next year.

If you’re buying an existing business, you’ll need a new EIN. An EIN provides evidence that your company exists as a legal entity and that you’ve followed federal and state laws to legitimize your business operations. 

You’ll also need a new EIN when converting your business to a different type of entity. If you have a corporation and you want to switch it to an LLC (or vice versa), you’ll need a new EIN, even if the name stays the same. You’ll also need a new EIN if you go into a partnership where you were once the sole proprietor, or if an estate takes over business ownership after the death of the highest shareholder.

Changing a business entity is a long, busy, complicated process. In significant cases, a business must dissolve and existing entity to develop a new one. Starting as a sing-member LLC and then forming a partnership is the easiest way to change a business entity and receive an EIN.

Does an LLC need an EIN to open a bank account?

Yes. A bank account is a vital requirement for any business, and an EIN is required to open one. The law requires business owners to have an EIN before engaging or employing contractors, so banks will ask for an EIN before the open a business bank account.

Your EIN proves that your business is a legal entity. It shows that your LLC company has completed all the required paperwork as per federal and state laws, meaning you can legally operate and generate profits. Banks always seek assurance when opening a new account, and having an EIN protects the owner’s SSN. It provides you with more options when it comes to business growth and financial help.

There are some situations where you can open a bank account without an EIN. Depending on your bank’s policies, some single-member LLCs may open checking and saving accounts without an EIN as long as the company has no contractors, no pension plan tax, excise tax, and zero employees.