Almost every type of business needs an Employer Identification Number (EIN). Your business will use this number for employee tax forms, but it’s also critical for a wide range of other business operations such as filing corporate income tax returns and opening bank accounts. The process to obtain an EIN can vary based on the structure of your business.
To help you out, this guide explains how to get an EIN for a personal services corporation. If you’re already running a personal services corporation or plan to start one, here is what you need to know.
What Is an EIN?
An EIN is a unique identification number for your business. When you deal with banks or government agencies, this number lets them know who you are. It’s much more precise than using a business name. This is similar to how you use your Social Security Number or tax ID rather than just your name. All kinds of people or businesses may have the same name as you. But no one else has the same EIN or Social Security Number as you.
What Is a Personal Services Corporation?
To qualify as a personal services corporation, your business must meet the following two criteria
- The majority of the business’s services are personal services. This is a service provided to one person or entity by another person. It’s not a product, an app, or anything tangible. It’s also a certain type of service. For instance, while carpet cleaning or hairdressing doesn’t count as a personal service, accounting does.
- At least 95% of the company’s stock is owned by employees who provide services, retired employees who used to provide services, an estate of a current or retired employee, or anyone who inherited stock in the corporation due to the death of an employee or retired employee in the last two years.
Personal services include health, law, engineering, architecture, accounting, actuarial science, performing arts, and consulting. If your business doesn’t provide these services and doesn’t meet the stock ownership rules noted above, it is not a personal services corporation.
Why Does Your Personal Services Corporation Need an EIN?
When you own a personal services corporation, you need to pay yourself like a W2 employee. Even if you are the sole owner of the company, you still have to pay yourself as if you are an employee. To do so, you need an EIN.
In contrast, if you perform personal services but your company is a sole proprietorship, you just take the profits from the company. You don’t have to make monthly or annual payroll tax deposits or generate a W2 for yourself.
A personal services corporation will also use an EIN for the following purposes:
- To open bank accounts and apply for loans.
- To file a corporate tax return.
- To create a pension plan.
When you apply for an EIN, you have to note why you need the number. In the course of running your business, you will use an EIN for a range of purposes. Simply choose the reason that applies the most now. Often, the reason will be that you are starting a new business or changing the structure of your business. For instance, if you’ve been providing personal services as a sole prop, but now you want to be a corporation, you’ll choose “changing your business structure”. If you’re just launching the business, you’ll choose “starting a new business”.
How Do You Get an EIN for a Social Services Corporation?
Once you’ve established that your business is a personal services corporation, you can apply for an EIN online or through the mail. Applying online is the fastest option. But if you want a lot of time to fill out the form and you don’t care how soon you get your number, then the mail can work just fine.
What Information Do You Need to Get a Personal Services EIN?
Luckily, the information you need to obtain an EIN for your personal services corporation is pretty straightforward. Most business owners can gather the information they need in an hour or less or even in a few minutes. You might have most of the information available in your personal memory.
When you apply for an EIN for your business, you need to answer several questions. Here is an overview of what to expect and tips on how to address each question.
- What is the legal name of your personal services corporation? This is the name you created when you formed the corporation in your state.
- What is your doing-business-as name? If you use a different name for signs and marketing, you need to provide that as well.
- What are your business’s contact details? This includes your address and phone number.
- Who is the responsible party? This will usually be you or another person who owns part of the personal services corporation. You also need their tax ID number.
- Is your personal services corporation also an LLC? If so, include your number of members and date of organization.
- What is your business type? You should just note “personal services corporation” for this question.
- Which state were you incorporated in? This is the state where you sent in your formation papers.
- When did you start or acquire your business?
- What’s the last month of your accounting year? For personal services corporations, this will be December because you’re required to use a fiscal year.
- How many employees do you have? Make sure that you know how many employees are general, household, or agricultural.
- Do you expect to pay more than $1,000 in employment tax this year? If you plan to pay more than $4,000 in wages, the answer is yes. For most businesses, this is yes.
- What type of service do you provide? As explained above, personal services only fall into a few different categories.
If you have the information to answer the above questions, you’re ready to apply. Once you apply for the EIN, you will get it pretty quickly. Online, you can often get the number the day or day after you apply. Then, you can start using it right away. There’s no waiting period.