Estimated reading time: 5 1/2 minutes
Starting a new business is a massive undertaking, whether you’re planning on doing it online, working in industry, or providing services and products to others. Ensuring that you have all the necessary legalities in place is crucial for long-term success. One such important aspect is obtaining an Employer Identification Number (EIN).
In this comprehensive guide, we’ll walk you through the step-by-step process of acquiring an EIN for your online business. Whether you’re a seasoned entrepreneur or just starting, this guide is tailored to meet the needs of small business owners venturing into the world of new business.
Here’s what we’ll cover:
- Introduction to an EIN
- Eligibility criteria
- Process of acquiring an EIN
- What you can use an EIN for
- Common problems and solutions
- EIN for foreign sellers
- Legal and tax implications
Introduction to Your EIN
An EIN, or Employer Identification Number, is a unique nine-digit identifier assigned by the IRS to businesses for tax purposes. While traditionally associated with employers, it’s equally vital for new and online businesses. Your EIN serves as a business’s social security number, facilitating tax reporting, including sales tax registration and remittance, opening a business bank account, and hiring employees.
Not every online or new business needs an EIN, but many will find it essential and that it will make your life a lot easier in the long run. If your online business operates as a corporation or partnership, has employees, or meets other IRS criteria, you likely need an EIN. Even if not strictly required, having an EIN is often advisable anyway for several reasons, such as separating personal and business finances, enhancing credibility, and complying with certain vendor requirements.
The Step-by-Step Process of Acquiring an EIN
Step 1: Determine eligibility and necessity for an EIN
Before diving into the application process, ensure that your online business meets the eligibility criteria outlined by the IRS. If your business fits the criteria or you find it beneficial to have an EIN, proceed to the next steps. The key eligibility criteria are as follows:
- Your main business is in the U.S. or one of the many U.S. Territories. (There is a way to do this for foreign sellers. See below for details)
- The online applicant must possess a valid Taxpayer Identification Number (SSN or ITIN).
- A single responsible party is restricted to obtaining one EIN per day.
Step 2: Gather the required information
To streamline the application process, collect the necessary information beforehand. This includes your business name, legal structure, address, and the social security number of the responsible party. Having this information on hand will expedite the application process. Ensure that you have all the following information for a smooth process:
- The legal business name (as registered with the authorities)
- The applicant’s legal name
- If you have one, the trade name of the company
- The full address details of the company including a valid mailing address, street address, country, and state specific to the business location
- The Name and SSN or ITIN of the responsible party.
Once you have all of this information, the application process becomes a lot easier. You should also have some basic information about the nature of your business to hand, as you may get asked this when filling out the SS4 Form.
Step 3: Choose the application method
The IRS offers multiple methods for applying for an EIN:
- Online: The preferred method for most is applying online through the IRS website. The process is efficient, and you receive your EIN immediately. Note that you can only apply during the hours in which the IRS is open.
- Telephone: In certain cases, you can apply over the phone by calling the IRS. This method is generally quicker than fax or mail but may not be available at all times. This is usually the preferred method for those applying for an IEN outside of the USA.
For those companies applying for an EIN as a US citizen, then the online process is the best and quickest way to get a hold of your EIN.
Step 4: Complete the application (Form SS-4)
Regardless of the application method, Form SS-4 is the key document. This form gathers essential information about your business and the responsible party. Ensure accuracy, as mistakes could delay the process.
The IRS online portal simply requires you to fill out the online form. This usually takes around 30 minutes to complete. Once you have submitted the questionnaire, you will get your EIN straight away.
Step 5: Submission of the application and expected processing times
Submit your application using your chosen method. If applying online, you’ll receive your EIN immediately. It is, however, important to note that it will only be registered on the IRS system up to two weeks after it has been generated. You can use your EIN, but you may need to wait for the IRS to verify your information against the given number. Applying over the phone generally takes longer for you to receive an EIN, and applicants can wait up to two weeks.
Once you can use it for the following:
- Tax filing: Use your EIN when filing taxes for your business.
- Opening a business bank account: Open a business bank account using your EIN to separate personal and business finances.
- Hiring employees: If your business expands and you hire employees, the EIN is necessary for payroll and compliance with employment tax regulations.
Common Issues and Solutions
While the EIN application process is generally straightforward, some common issues may arise including business name mismatching and discrepancies surrounding your SSN. Before the application process starts, try to have these verified.
How to Get an EIN for International Sellers
If you are not a US-based seller, don’t despair. We’ve also outlined the way to get an EIN to do business in the US.
Since often international sellers are asking about getting an EIN to handle US sales tax, we also created a free download with the 5 steps international sellers must take before applying for a US sales tax permit.
Getting an EIN is one of them.
Legal and Tax Implications
Obtaining an EIN carries legal and tax responsibilities. It is essential to fulfill your sales tax obligations accurately and on time. Understanding the implications ensures your online business operates ethically and remains in compliance with IRS regulations.
In online business, obtaining an EIN is a foundational step. It not only fulfills legal requirements but also initiates financial organization and business growth. By following this Employer Identification Number guide and EIN application steps, small business owners and entrepreneurs can navigate the EIN process with confidence and will be better positioned for success in the competitive online landscape.
Like we said before, often people go looking for how to get an EIN when they’re trying to handle sales tax appropriately. If this is you and you still have questions about how sales tax works and what your obligations are, watch our free sales tax masterclass. We answer a lot of common questions and give you 3 big mistakes that you do NOT want to make when setting up your sales tax.