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Why Does My Business Need an Employer ID (EIN)? What is an EIN Used For?

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Question: Why Does My Business Need an Employer ID (EIN)? What is an EIN Used For?
Answer:

What is an EIN?
An Employer ID Number (EIN) is a tax identification number for a business. An EIN is a nine-digit number in the form xx-xxxxxxx. This number is required for some business purposes and useful for other purposes.

What is an EIN Used for?

  • Opening a business bank account. Most banks require an EIN as an identifier for a business bank account.
  • Applying for business licenses. For local and state business licenses, you will be asked for your EIN for identification purposes.
  • Filing tax reports. An EIN is required on all federal income tax forms and federal payroll/employment tax forms.
  • Filing electronic returns. Most federal tax payments must be made electronically using the federal tax filing system (EFTPS), and an EIN serves as the identifier on all tax returns.
  • State taxes. For state sales tax, income tax, and other state taxes, you will need an EIN. In some states, you may also need a state EIN.

When your business must have an EIN
The IRS requires that a business have an EIN in the following circumstances:

  • If you have employees,
  • If your business is operated as a partnership or a corporation
  • If you file any of these tax returns: Employment, Excise, or Alcohol, Tobacco and Firearms
  • If you withhold taxes on income, other than wages, paid to a non-resident alien
The IRS implies that you don't need an EIN if you have only independent contractors as workers, but check with your tax advisor to see if you should apply for an EIN in this circumstance.

How Do I Get an EIN?
Go to the IRS website and look for the link to Form SS-4. You may complete the EIN application online, by fax, by phone or by mail. If you apply online, you can have your EIN within a few minutes. Before you apply, print out a copy of the SS-4 and answer the questions to save time.

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