What is an EIN number and how do I apply for one?
An Employer Identification Number (EIN) is a unique 9-digit number assigned by the IRS to business owners, estates, trusts, and other entities for tax purposes. An EIN is similar to a US citizen’s Social Security Number (SSN) but used by businesses.
An EIN is required by Federal law when paying employees in the US and managing business taxes. You can still apply for an EIN if you’re self-employed and run a small business with no other employees.
Do I need an EIN?
Every business operating within the US is required to have an EIN. You must first apply for an EIN before applying for a business licence. The Internal Revenue Services (IRS) uses EINs to track business income taxes.
If you run a multinational enterprise located outside the US but want to conduct business in the country, you must acquire an EIN to report your earnings. This applies to any e-commerce site or company that trades through a 3rd-party like Amazon.
You must file for an EIN if:
- Your business has employees
- You file excise, employment, or Alcohol, Tobacco and Firearms (ATF) tax returns
- Your business is an estate, a trust, a ‘non-profit,’, a mortgage investment conduit, or a farmers’ cooperative
- Your business withholds taxes on income paid to non-resident expats
- You have a Keogh plan
- The structure or ownership of your business has changed
- You import goods to the US.
How do I apply for an EIN?
Applying for an EIN is free and can be done online or by phone. To obtain an EIN from overseas, you must hold proof that you are either the business owner or are authorised to act on behalf of the business. You will also need to be able to answer questions related to Form SS-4.
To complete a Form SS-4, you must know the company’s US mailing address, the type of entity it is, the reason you are applying for an EIN, and the industry your business works within.
When issued an EIN, the IRS will deliver a physical copy to your US postal address within a few weeks. You can also request that your EIN be delivered internationally via courier or that a digital copy is provided by email.
What are the benefits of applying for an EIN?
If you run a small business or are an independent contractor, having an EIN is not often mandatory (depending on the banks in your respective state or country) but can still provide valuable benefits.
An EIN helps protect you from identity theft
An EIN is an effective way to prevent identity theft. If you are an independent contractor or sole proprietor, you can provide clients and vendors with your EIN rather than your personal Social Security Number (SSN).
You’ll need an EIN to open a business bank account
Most banks have strict policies regarding business bank accounts. In some states, you might be able to open a business bank account as a sole proprietor without an EIN, but don’t count on it.
An EIN is required to build a business credit history. Business credit evaluates your company’s financial responsibility. Small-business owners often rely on vendors, suppliers and other parties to achieve business goals. Wholesale distributors will usually want some assurance before agreeing to any contract.
A business credit report is built into your EIN and contains a summary of your business’s payment history. Good credit history will make 3rd parties far more willing to enter a contract with you and can help establish quick, mutually beneficial business relationships.
Applying for an EIN can help you avoid tax penalties
If you’re unsure whether you need an EIN, best be safe and apply for one regardless. There’s no harm in doing so, and it can protect you from an unexpected audit by the IRS and any penalties that might result.
You’ll need an EIN to grow your business
If you want to expand your enterprise and hire employees, you need an EIN. Even if you do not currently employ anyone, you never know when an extra pair of hands might come in handy. Applying for an EIN now can make the hiring process more straightforward in future.
An EIN is required for foreign nationals to open a US-based business
Non-US citizens who are not eligible to work in the US do not qualify for an SSN. Therefore the only way to legally operate a business based in the US is to do so through an EIN.
Common questions
What if I don’t use my EIN?
There are no negative repercussions for not using your EIN to conduct business if you are an independent contractor or sole proprietor. You can use your SSN instead of an EIN, but using an EIN provides a level of personal protection against identity theft.
Can I open a business bank account without an EIN?
Some banks may allow you to open a business bank account without an EIN, but most have strict policies. If you are a foreign national and are not eligible to work in the US, you must apply for an EIN to conduct business legally and open a business bank account. Alternatively, you can apply for a temporary work permit and then apply for an SSN.
How CurrencyTransfer can help you run a US-based company
If you’re a foreign national and operate a business in the US, we can help you turn a greater profit by helping you save on international money transfers and payments.
We help SMEs save money by cutting excessive bank fees and removing the need for unreliable forex brokers.