If you are operating your own business, you are required to get a federal employer ID number (EIN) and may get one even if it isn’t needed. The EIN is similar to a social security number where it identifies your business as a single entity by the government, financial, tax and regulatory agencies. When you receive your EIN from the Internal Revenue Service, it can distinguish and sort out your personal and business liabilities and obligations.
As the IRS gives you the tax ID number, the EIN will distinguish the sole owner of a particular business. Different types of businesses such as sole proprietors, partnerships, corporations, government agencies, employers, non-profits and other business entities have to use EINs. For sole proprietors, they use the employer ID number to identify their business in creating important layers of privacy and legal separation between their business and personal affairs. If you use EIN rather than your social security number, you prevent access of your personal details affiliated to your social security number.
An EIN will identify your business identity even if you move or relocate to another business address. It allows business owners to take advantage of their tax, financial or regulatory benefits created over the years. So long as operating status and business ownership don’t change, the EIN will be the same for your business even if it grows or makes some changes. The EIN is solely given to the owner of the business and not the business itself. Should there be changes in ownership, the new business owner will need to secure a new employer ID number. You will also need the EIN if your business files for bankruptcy or initiates a retirement plan or profit sharing.
Even if you’re not an employer, you can still have the EIN. For partnership or corporation, the EIN is mandatory for your taxable products or services, employees, withhold taxes on income, Keogh plan, gather sales tax, or file any type of federal tax returns. This identification number is required for application of business license, social security records, tax payments, employment tax reports, and income tax forms. Many banks also require the EIN to open a business bank account.
To apply for an employer ID number, you need to fill-out the SS-4 form and submit it to the IRS for approval.