Apply for an Employer ID Number (EIN)
Who Needs a Tax ID (EIN)?
An EIN is needed to:
- Open a Business Bank Account
- Create a Trust
- Manage an Estate
- Hire new Employees
Not sure which entity type to select? Use the entity definitions below to understand the correct type to select.
ENTITY TYPE DEFINITIONS
Sole Proprietor/Individual +
A sole proprietor is one individual who owns a company that is not incorporated or registered with the state as a limited liability company (LLC) or Corporation. Sole proprietors may or may not have employees.
In a sole proprietorship:
- The business does not exist separately from the owner.
- The risks of business apply to the individual’s personal assets, including those not used for the business.
- The sole proprietor reports business income on his or her individual tax return.
Limited Liability Company (LLC) +
A limited liability company (LLC) is a structure allowed by state statute. An LLC is formed by filing articles of organization with the individual state’s secretary of state. Owners of an LLC are called members. Members may include individuals, corporations, other LLCs, and foreign entities. An LLC can be formed by one or more members, and there is no maximum number of members.
There can be no more than one active LLC with the same name in the same state.
For federal tax purposes, an LLC may be treated as a partnership or a corporation, or be disregarded as an entity separate from its owner.
An LLC can also be organized as a professional limited liability company (PLLC) or a limited company (LC).
A corporation is a legal entity established by a charter granting it certain legal powers, rights, privileges, and liabilities. A corporation can be established by a person or group of people with a charter from the state’s secretary of state. After a corporation is created, it becomes its own entity and generally has an indefinite lifespan.
An estate (or decedent estate) or succession is a legal entity created as a result of a person’s death. The estate consists of the real estate and/or personal property of the deceased person. The estate pays any debts owed by the decedent, and distributes the balance of the estate’s assets to the beneficiaries of the estate.
A trust is a legal entity that is created under state law and is taxed under federal law. The trust can be created to perform one act or a series of acts. The two most common types of Trusts are Irrevocable and Revocable Trusts:
Irrevocable Trust – In an irrevocable trust the grantor has no control of the trust (the trust cannot be repealed or annulled) and the trust will pay tax.
Revocable Trust – A revocable trust is a trust that may be altered or terminated during the grantor’s lifetime. Since the trust may be altered at any time until the grantor’s death, it is considered part of the grantor’s estate and is subject to taxation. The property is passed on to the beneficiaries only after the grantor’s death, and the revocable trust then becomes irrevocable.
An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits. However, a joint undertaking merely to share expenses is not a partnership. For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants.
- Partners can be individuals, corporations, trusts, estates, and other partnerships.
- Each partner contributes money, property, labor or skill, and expects to share in the profits and losses of the business.
- A partnership does not pay tax on its income, but “passes through” any profits or losses to its partners. Partners must include partnership items on their tax returns.
Church Organization +
For tax purposes, a “church” refers to any organization claiming to be a church or any convention or association of churches. The word “church” includes temples, mosques, and other houses of worship. To be considered a church for tax purposes, a group must be part of an organized religion, must have a mission statement, and must be formally organized as a distinct legal entity. Certain characteristics are generally attributed to churches. They include:
- A distinct legal existence and religious history
- A recognized creed, form of worship, and literature of its own
- A definite and distinct ecclesiastical government including a formal code of doctrine and discipline
- An organization of ordained ministers, selected after completing prescribed courses of study
- Established places of worship with regular congregations, religious services, and/or religious instruction for members.
Non-Profit Organization +
Non-profit organizations include corporations, trusts, limited liability companies, and unincorporated associations that qualify for tax-exempt status under Internal Revenue Code (IRC) 501(a) as described in Publication 557 (Tax-Exempt Status for Your Organization).
Non-profit organizations include: public charities, private foundations, educational organizations, employee associations, veteran’s organizations, business leagues, state-chartered credit unions, child care organizations, homeowners/condo associations, sports teams, political organizations, scholarship funds, PTA/PTO or School Organizations and teachers’ retirement fund associations. This list is not all-inclusive.
Sole proprietors and partnerships cannot be considered for tax-exempt status. For-profit organizations cannot be considered for tax-exempt status.
A corporation is a person or group of people who establish a legal entity by filing articles of incorporation with the state’s secretary of state granting it certain legal powers, rights, privileges, and liabilities. An S corporation is an eligible domestic corporation that wants to avoid double taxation (once to the shareholders and again to the corporation) by electing this status using Form 2553 (Election by a Small Business Corporation).
Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. An S corporation is not a sole proprietor or partnership.
Personal Service Corporation +
A personal service corporation is a person or group of people who establish a legal entity by filing articles of incorporation with the state’s secretary of state granting it certain legal powers, rights, privileges, and liabilities. A personal service corporation is an organization in which the activity involves the performance of services in the field of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting.
In a personal service corporation, substantially all of the stock is owned by the employees who perform the services. A personal service corporation sells its ideas or expertise rather than tangible goods. A personal service corporation is not a sole proprietor or partnership.
FREQUENTLY ASKED QUESTIONS
What is a Tax ID (EIN) Number?
An EIN Number (also called a Tax ID) stands for Employer Identification Number. Most people consider an EIN Number like a Social Security Number (SSN) for a business. The IRS requires most businesses to obtain an EIN in order to identify the business for tax purposes. Some advantages of getting your Tax ID / EIN Number include: the ability to open a business bank account or line of credit, to hire employees or to apply for certain business licenses.
Who needs a Tax ID (EIN)?
An EIN is required for many reasons for businesses, taxable entities and non-profit organizations. If any of the follow apply to your business or entity you will need an EIN:
- Hiring Employees
- Operate your business as a Corporation or Partnership
- If you will file any of following tax returns: Employment, Excise or Alcohol, Tobacco and Firearms
- Have a Keogh Plan
- If you’re involved with any of the following organizations/entities:
- Trusts (except certain grantor-owned revocable trusts)
- Real Estate mortgage investment conduits
- Non-profit organizations
- Farmers’ cooperatives
- Plan Administrators
If I don’t need an EIN why should I get one?
Even if your business, organization or entity is not required to obtain an EIN, it is highly recommended that you obtain one when starting or forming your business/organization for many reasons:
- Use your EIN instead of your SSN on business applications and licenses to protect your personal information
- Many state and local permits require that you have an EIN
- An EIN is required to open a business bank account
- EINs help to establish business credit history
- Minimize delays when you decide to hire employees
What is a Responsible Party?
Every EIN application requires that a person who is a principal officer, general partner, grantor, owner or trustor be designated as the primary point of contact and responsible for receiving correspondence from the IRS related to the entity. This person is called the “responsible party” by the IRS. This person controls, manages or directs the applicant entity and disposition of funds and assets. If there is more than one responsible party for the entity, please list the primary person that you would like the IRS to recognize as the responsible party.
Under the current revised version of the IRS EIN application, a responsible party is defined as:
“For entities with shares or interests traded on a public exchange, or which are registered with the Securities and Exchange Commission, “responsible party” is (a) the principal officer, if the business is a corporation, (b) a general partner, if a partnership, (c) the owner of an entity that is disregarded as separate from its owner (disregarded entities owned by a corporation enter the corporation’s name and EIN), or (d) a grantor, owner, or trustor if a trust.”
“For all other entities, “responsible party” is the person who has a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the individual, directly or indirectly, to control, manage or direct the entity and the disposition of its funds and assets. The ability to fund the entity or the entitlement to the property of the entity alone, however, without any corresponding authority to control, manage, or direct the entity (such as in the case of a minor child beneficiary), does not cause the individual to be a responsible party.”