An Employer Identification Number (EIN) is a unique identification number issued by the Internal Revenue Service (IRS) to identify businesses for tax purposes. The EIN is also known as the Federal Tax Identification Number and is a critical component of running a business.
Any business entity that hires employees, has a Keogh plan, files tax returns for employment, excise or alcohol, tobacco, and firearms taxes, or operates as a partnership or corporation must obtain an EIN. In this article, we will explain how to apply for an EIN and the limitations that apply to this process.
EIN Application Process:
To apply for an EIN, businesses need to complete Form SS-4, which is available on the IRS website. The form requires basic information about the business entity, such as the legal name, mailing address, business type, and the reason for requesting an EIN. The form can be submitted online, through fax, or by mail, depending on the preference of the applicant.
Daily Limitation on Requests for EINs per Responsible Party:
One of the critical limitations applicable to the EIN application process is the daily limit on the number of requests for EINs that can be made per responsible party. The responsible party is the person who has the authority to control, manage, and direct the business entity. The IRS allows a maximum of one EIN per responsible party per day. This limitation applies to all requests, including those for sole proprietors.
The IRS introduced this limitation to prevent identity theft and fraud. The limitation ensures that each responsible party has a unique EIN, and no one can obtain multiple EINs under the same name. While this limitation may cause inconvenience to some applicants, it is essential to maintain the integrity of the EIN application process.
Valid Taxpayer Identification Number Options:
Business entities have two options when it comes to obtaining a valid Taxpayer Identification Number (TIN). They can either apply for an EIN or use their Social Security Number (SSN). The EIN is the preferred option for business entities because it separates their personal and business finances, protects their identity, and allows them to hire employees. In contrast, the SSN is only applicable to individuals and sole proprietors.
It is important to note that using an SSN as a TIN can limit the growth potential of a business. Many lenders, vendors, and customers prefer to do business with entities that have an EIN as it is seen as more professional and legitimate. Additionally, using an SSN as a TIN can increase the risk of identity theft and expose personal finances to business liabilities.
Applying for an EIN Online:
The IRS encourages applicants to apply for an EIN online, as it is the fastest and most efficient method of application. To apply online, applicants must complete the online application form available on the IRS website. The form requires basic information about the business entity and the responsible party, similar to Form SS-4. Once the application is complete, the IRS will issue the EIN immediately.
The online application process has several benefits, such as convenience, speed, accuracy, and security. It eliminates the need for paper forms and reduces the turnaround time for receiving an EIN. Additionally, the online system has built-in error checks to ensure that the information provided is accurate, reducing the likelihood of errors and delays in processing.
Applying for an EIN through Fax or Mail:
Applicants who prefer to apply for an EIN through fax or mail can download Form SS-4 from the IRS website, complete it, and send it to the appropriate fax or mail address. EIN processing time by fax/mail varies from days to weeks based on the IRS workload.
To avoid errors and delays in processing, applicants must ensure that all the information provided is accurate and complete. Any errors or missing information can result in delays in processing and may require the applicant to resubmit the application. Additionally, applicants must ensure that they include a valid Taxpayer Identification Number (TIN) on the application. The TIN can be an EIN or an SSN.
Apologize for any Inconvenience:
The daily limitation on requests for EINs per responsible party may cause inconvenience to some applicants, especially those who need to obtain multiple EINs in a short period. The IRS recognizes the inconvenience and apologizes for any inconvenience caused. However, the limitation is necessary to ensure fair and equitable treatment for all applicants and to prevent fraud and identity theft.
Obtaining an EIN is a crucial step in starting and running a business. The EIN is a unique identification number that is used for tax purposes, and it separates personal and business finances. While there are limitations applicable to the EIN application process, such as the daily limitation on requests for EINs per responsible party, the process is straightforward and can be completed online, through fax, or by mail.
Business entities must ensure that they provide accurate and complete information on the application form and use a valid Taxpayer Identification Number (TIN) to avoid errors and delays in processing. By following these guidelines, businesses can obtain an EIN quickly and efficiently, ensuring compliance with IRS regulations and avoiding penalties and fines for non-compliance.