What is an EIN? – Employer Identification Number

What is an EIN? – Employer Identification Number


Hi, I’m Tony here at The Really Useful Information Company and today, we’re talking about EINs. We’ll discuss what they are,
why you might want or need one, and how to apply with the IRS for free. (chimes) So what is an EIN exactly? Simply put, an EIN is like
a Social Security number for your business. What EIN actually stands for is Employer Identification Number. As the name implies, an EIN is
a number that the IRS issues to be able to tell businesses
apart from one another. You can also find it called FEIN because someone decided
they wanted the word federal in front of it or you can find it referenced as your business’s Tax
Identification Number. Whatever you decide to call it, you’ll probably want to know
if you even need an EIN. For this, the key word is employer. If your business has or is
going to have employees, you’ll need an EIN. Additionally, any business
that is either a partnership or a multi-member LLC
has to have an EIN too. The partnership return that these business structures
have to file with the IRS requires an EIN. While this technically means that businesses that
are sole-proprietorships or single-member LLCs without employees can function without an EIN, there are plenty of reasons
you might still want one. First, most banks will
require you to have an EIN before they’ll let you open
a business bank account. A separate bank account for your business is something you will want. A business bank account makes it easier to track what is or is
not a business expense and lets your business build credit and qualify for more loans. Second, as we mentioned before, if you want employees,
you’re going to need an EIN. Getting an EIN early on lets
you be prepared for the future. Third, having an EIN can make your business
appear more credible. Business owners often prefer
to work with other businesses versus just a person doing
something on their own. And finally, having an EIN
helps maintain separation between what is yours personally and what belongs to the business. Now, knowing all the reasons
you might want an EIN won’t do you any good if you
don’t know how to get one. Fortunately, applying for
an EIN is easy and free. You do so through the IRS website and it can be done in five minutes. Now keep in mind, you are only
able to use the IRS portal between the hours of 7:00 a.m. and 10:00 p.m. Eastern Standard Time. To begin, the first thing
the IRS is going to ask you is what type of legal structure are you choosing for your business. They give you six options
on the first page, with the option to view 23
other legal entity types. For the context of this video though, we’re going to keep it simple and stick to running
you through the process of getting an EIN for an LLC. You’ll be able to get the idea and also have insight into
what sort of information you’ll need for every business type. After you have selected
limited liability company as your business structure, you’ll be taken to a page to fill out some of the
basic details of your LLC. On this page you will select the state your business is physically located in and how many members your
LLC is going to have. Depending on what you
answer for this section will determine which screen you see next. If you enter one as the number of members, you will get a different
confirmation screen than if you enter two or more. And this is actually
because a single-member LLC behaves differently
than a multi-member LLC, at least in the eyes of the IRS. See, limited liability companies have what are known as
default tax statuses and these are different
for single-member LLCs or multi-member LLCs. A single member LLC is, by default, taxed as a disregarded entity and a multi-member LLC is, by default, taxed as a partnership. Besides these default elections of disregarded entity and partnership, there are two other
elections you can choose, an S corporation and a C corporation. Briefly, an S corporation will
help you reduce the amount of self-employment taxes
you will have to pay. You would select an S corporation, one, if you’re going to make
a sufficient amount of profit and two, you’d be taking
all of that profit out of the LLC each year
and not reinvesting. On the other hand, you
would choose a C corporation if you plan to raise money
from professional investors and reinvest income back into the company. But remember, both these options require more paperwork and maintenance and have increased associated costs. For most people, the default
elections are probably best. You and any other members of your LLC will pay taxes on your
own personal tax returns and you can always elect to
change your tax status later. We’ll have all the details of
everything you need to know about business and tax structures in our “What Structure Should I Choose
For My Business?” article that we will link in
the description below. Once you’ve clicked
through the confirm screen, you’ll be asked to click on an option for why you are getting
an EIN in the first place. You’ll have five options. One, because you are
starting a new business. Two, because you have hired employees. Three, for banking purposes. Four, because you’re changing
the type of your organization. Or five, because you have
purchased an active business. Most people will choose it’s
because they’ve hired employees or for banking purposes. After you’ve selected
your business’s purpose, you’ll be greeted with the question of who is the responsible party? This is basically a fancy way of asking who is trying to get this EIN? Is it the owner, a member,
or a manager of the LLC? Or is it a third party? If you are trying to get an
EIN on someone else’s behalf, you are a third party and you will have to fill out
a bit of extra information. First, you’ll have to state if you are a third party designee, which just means someone has in fact given you their blessing to get an EIN. If you say yes, you’ll be taken to a
screen that has you affirm that someone has completed a form naming you as their designee. If you say yes, you’ll continue on the normal
path I’ll explain in a moment, but if you say no here, you’ll be given instructions for unauthorized third parties. Here the IRS states, quote, “You are not authorized to receive an EIN “on the taxpayer’s behalf. “However, you may continue
with the online application “and upon successful completion,
an EIN will be assigned.” For most people, however, as soon as you’ve said that you are an owner, member, manager, or third party designee, you’ll be prompted to fill out the company’s physical address, and if different, its mailing address. Next, you’ll get to the screen
called tell us about the LLC. Here you will need to provide, one, the legal name of the LLC, which is why it may be best to wait until your business
is formed to get an EIN, two, any trade names or DBAs you’re using, three, the county and state where the business is physically located, four, the state in which the
formation documents were filed, and finally five, the month
and year the LLC was formed. Once you’re done with
tell us about the LLC, there comes tell us more about the LLC. Here on this screen, you’ll
be asked to say yes or no to some rather specific questions. Namely, does your business involve using a truck over 55,000 pounds? Does your company involve gambling? Are you going to have
to fill out IRS Form 720 and file quarterly Federal
Excise Tax Returns? We’ll link IRS Form 720 below
so you can see for yourself, but most of the time that’s gonna be a no. Does your business produce or sell alcohol, tobacco, or firearms? And finally, the one relevant to most people trying to get an EIN, are you, in the next year, going to have employees that
you will need to have W-2s for? Believe it or not, that last question is the only one that will get you an
extra screen with the IRS. On this extra screen, you
will be asked to estimate to the best of your ability how many employees you think
you will have this year, how many agricultural employees
you think you will have, if you expect your
withholding taxes collected to be less than $1,000 this year, and the date you did or
expect to start paying wages. Then, comes the home stretch. You’ll have two more screens
of bubbles to fill out asking you what the
business will be used for, a final confirmation that
all the details are correct, and then you’re done. Now, I know this seems like a lot. But I can assure you, having gone through
this process many times to research for this video, you can actually get
all of this information filled out quickly, in
often under five minutes. The IRS actually does a very good job making this process go smoothly. If you have any questions about anything we’ve
talked about here today, make sure to leave us a comment below. For detailed guides, check
us out at HowToStartAnLLC.com and make sure you like this video and subscribe for more
really useful information. I’m Tony here at TRUiC,
and thanks for watching. (calm music)

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2 thoughts on “What is an EIN? – Employer Identification Number”

  • Hi, i wasn't sure how else to contact TRUiC but i wanted you to know that the "FORM AN LLC IN MARYLAND" page has a silhouette that is only of part of the state. That's all

  • I hope doing this does not send the IRS to my business for making a deposit between $5000 and $10000 and then take that money without even charging me with any crime or tax evasion of any kind.

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