Last updated on February 8, 2025
Starting a business that requires employees for bank account opening will likely lead you to encounter the Employer Identification Number (EIN). All businesses need this unique nine-digit number which the IRS issues to maintain legal compliance and purposes of taxation. We will simplify the explanation about Employer Identification Numbers including their definition while covering who requires them and how to obtain them together with the associated advantages.
1. What is an EIN?
Businesses require a Federal Tax Identification Number which goes by the term EIN as a substitute for Social Security Numbers (SSN) for organisational identification. The Internal Revenue Service tracks business tax responsibilities by using this identification number.
Why It Matters:
✅ Required for filing business taxes.
✅ Necessary if you plan to hire employees.
✅ Needed to open a business bank account.
2. Who Needs an EIN?
Not every business requires an EIN, but many do for legal and tax purposes. If you plan to hire employees or operate as an LLC, corporation, or partnership, you’ll need one. Meeting any of these criteria makes obtaining an EIN essential for your business.
You Need an EIN If:
✅ You have employees.
✅ You run an LLC, corporation, or partnership.
✅ You operate a nonprofit or trust.
✅ You file excise taxes.
3. How to Apply for an EIN
Applying for an EIN is quick and free through the IRS website. You can also apply by mail or fax, but the online option is the fastest.
Steps to Get an EIN:
✅ Visit the IRS EIN Application Page.
✅ Fill out Form SS-4 with your business details.
✅ Submit the form and receive your EIN instantly (if applying online).
4. Why Having an EIN is Beneficial
An EIN isn’t just a tax requirement—it also helps your business grow and stay organized.
Key Benefits:
✅ Keeps business and personal finances separate.
✅ Helps build business credit.
✅ Required for payroll and tax filings.
✅ Adds legitimacy to your business.
5. Common Mistakes When Applying for an EIN
Many business owners make simple errors when applying for an EIN. Here’s what to watch out for.
Avoid These Mistakes:
✅ Entering incorrect business details.
✅ Applying for multiple EINs unnecessarily.
✅ Forgetting to update the IRS when your business information changes.
✅ Using an EIN instead of an SSN when not required.
✅ Not keeping a record of your EIN for future reference.
✅ Delaying EIN application, causing business operation delays.
EIN at a Glance
| Topic | Details |
| What is an EIN? | A unique tax ID for businesses |
| Who Needs It? | Employers, LLCs, corporations, nonprofits |
| How to Apply? | Online via IRS, Form SS-4 |
| Benefits | Business credit, tax filing, credibility |
| Common Mistakes | Incorrect info, duplicate EINs, no updates |
Helpful Resources
- Apply for EIN Online – IRS Website
- Understanding Business Taxes – IRS Business Taxes
- Starting a Business Guide – SBA Website
Conclusion
Obtaining an EIN is a crucial step for many businesses, serving as more than just a tax requirement. It plays a key role in ensuring tax compliance, streamlining financial organisation, and enhancing the overall credibility of your business. Whether you are launching a new venture or scaling an existing one, having an EIN allows you to separate personal and business finances, build business credit, and meet essential legal obligations. It also simplifies payroll management and tax filings, making operations smoother. No matter the size of your business, securing an EIN is a smart move that sets a strong foundation for long-term success.
For more small business tips, check out our Business Essentials Guide.
