If you're in the process of making the move to self-employment, or you're starting up a small business, then you may need to think about applying for an Employer Identification Number, or EIN. This number is a set of digits, also known as a Federal Tax Identification Number, that is issued by the IRS to identity a business entity or employer for the purposes of tax documentation.
Deciding whether or not you need one of these numbers depends on asking yourself a set of simple questions, including:
Do you have employees?
Do you file any excise tax returns?
Do you have a Keogh Retirement Plan?
Do you operate your business as a partnership or corporation?
If you answered all of the questions above with a no, then you're probably an independent contractor or sole proprietor, and as such you may not need an EIN. Instead, in those circumstances you are often required to use your social security number to identify yourself for business tax purposes.
Defining Yourself as an Employer
Perhaps the most complicated and important thing to think about when determining whether your need an EIN, is whether you are in fact an employer. If you need an Employer Identification Number, it's usually because you're issuing payment checks to someone and withholding payroll taxes in the form of social security tax, income tax, or Medicare tax, and filing payroll tax returns.
For EIN purposes, your employee must be someone other than yourself, and you are never considered the employee of your own business, because the payments that you make to yourself out of any profit your business makes are not considered to be wages. Importantly, however, you can be an employer and not be involved in running an actual business. For example, if you hire a nanny, caregiver, or other domestic worker then you are still an employer so long as you pay that individual $2,000 or more in wages every year.
Applying for an Employer Identification Number
There are various ways that you can apply for your EIN. For example, if you prefer to stay away from the internet, there is a toll-free telephone number that you can contact between 7am and 10pm that allows you to answer the questions laid out in the Form-SS4 required to apply for an EIN. On the other hand, if you do have an internet connection, you may find that it is much more convenient to simply complete the forms yourself online, or print them out and complete them at home to mail them to the IRS yourself.
If you're unsure about anything when filling out your EIN forms it may be best to talk to an expert through the toll free number, or get in contact with the IRS. After all, the last thing you want to do is give the IRS information about you and your business that turns out to be incorrect. Your EIN number will follow you for the remainder of your business, although you may be required to apply for a new number if you make a significant change to your company.