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Find out whether your LLC needs an EIN number and how to apply for it. This guide is suitable for both, nonresident aliens and U.S. citizens/ residents.
What’s an EIN?
An EIN is an Employer Identification Number issued by the Internal Revenue Service (IRS). It’s a unique number assigned to your business for tax administrator and reporting. It’s used by the IRS to identify your business, track it’s income and tax.
The EIN can be compared to the Social Security Number (SSN), the only difference is that EINs are assigned to businesses while the SSN is used for individuals.
Federal Tax ID and Tax Identification Number (TIN) are the two alternative names used instead of EIN.
When does your LLC need an EIN?
There are specific circumstances, set out by the IRS, in which you’ll need an EIN number for your LLC:
- If your LLC has employees;
- If your LLC files excise taxes;
- If your LLC will offer 401(K) retirement plans;
- If your LLC withholds taxes for income paid to a nonresident alien; and
- If you don’t have a SSN
In addition, if you want to open a business bank account, you’ll need an EIN.
What are excise taxes?
Excise taxes are additional taxes businesses pay on specific goods like tobacco, fuel, or alcohol. They’re legislated and imposed by the governments, collected from the sales of the goods.
Excise taxes are paid by the businesses, not consumers, although consumers will indirectly be affected by the increased prices of affected the goods.
U.S. Citizens and Residents
If you’re a citizen or resident of the USA, you can run your LLC without an EIN. Pass-through taxation means that your LLC’s profits are taxed at your personal income level anyway, so the LLC doesn’t need its own tax identification number. While this is possible, it is not recommended as it is always better to have an EIN for your business to keep it separate from your personal affairs.
This only applies if you don’t have any employees, excise taxes, or any of the other things mentioned above.
As a nonresident alien, you don’t have a social security number. You can apply for an ITIN (individual tax identification number), which would become the equivalent of your SSN.
ITIN is useful if you do business inside the USA and you’re liable to pay tax on that income. However, if you don’t have any effectively connected income, you don’t have to pay taxes to the IRS.
An ITIN will not replace the EIN for your business anyway. If you want to open a business bank account, you’ll still need an EIN.
Getting an EIN number, even when you don’t need it, can be beneficial for your business. Here are some of the reasons why you might consider applying for an EIN regardless.
Using an EIN when dealing with customers and contractors will protect your identity by keeping your individual tax number private.
While it’s unlikely that your customers will try to steal your identity, it’s still a good idea to keep your individual tax identification safe and out of the public eye. The less it’s exposed, the safer your identity will be.
Obtaining an EIN means you can use it on invoices and official paperwork, since you’ll be dealing with customers as a business, not an individual.
Having an EIN will earn you extra credibility in the eyes of U.S. based clients. It shows that you’re running a serious business and are legitimately reporting your taxes.
If you care about building your business’ credit to stand a better chance of getting financing, loans, and have access to financial products like credit cards, then an EIN will assist you.
To build business credit you have to separate your finances from your business’ finances. The only way to do this is by opening a business bank account. You’ll need an EIN to do that.
Use that EIN to connect your bank account with other financial products that build your credit. Over time you’ll find that loan and financing processes will be easier.
Connect with Vendors
Many vendors and partnerships want to check your business credit rating before engaging in trade with you. If your business relies on this, then you’ll need an EIN.
The EIN is what vendors use to check your business’ credit score.
An EIN makes it possible for your LLC to hire employees. Employees can help your business grow and be more productive.
How to apply for an EIN
The IRS issues EINs to all businesses for free. Why wouldn’t they? It’s a number that puts your business on the IRS books and lets you pay tax, after all.
There are multiple ways to apply for the EIN number, each one will involve doing some sort of paperwork.
If you already have an SSN or an ITIN, then you can apply for an EIN online.
It will take you approximately 20 minutes to complete the application online.
It’s the easiest method, unfortunately not available to all.
Applying Through the Phone for International Applicants
The Business & Specialty Tax Line is able to help you obtain an EIN for your business if you’re not a U.S. citizen/ resident.
Expect a long wait before you get through to an administrator, sometimes up to several hours. The phone call itself will also take a while, as you go through the SS-4 form with the administrator.
Applying by Mail
The IRS offers you the option to apply for an EIN by mailing Form SS-4 through to their offices in Cincinnati.
The timeframe for application processing is about four weeks. Make sure you fill the form in correctly, otherwise you’ll delay the entire process massively.
Applying by Fax
If you’re worried about the postal services losing your application, or you want to speed things up slightly, then you can fax your application form to the IRS.
Your biggest problem will probably be finding a fax machine, since they’re almost extinct.
If you do though, you can get a much faster response from the IRS if you give them a fax number they can contact in response.
Automatic EIN Filing
If you’re not up for the challenge of filing for an EIN number, we’ll do it for you when you form an LLC with us.
Our package 2 and 3 includes EIN application filing, as well as a registered agent and physical address service for your LLC.
Find out more information here.
To conclude; even if you don’t have to have an EIN number, it’s worth applying for. It offers many advantages. There are multiple ways to apply for an EIN, including having it done on your behalf when forming a company with us.