When Should You Apply for an EIN?

When forming a business such as a Limited Liability Company (LLC), Corporation, or Partnership, you should apply for an EIN at the point at which the IRS requires you to have one, or before you complete key setup steps that depend on it.

Typically, the time to apply for an EIN is immediately after taking any of the following steps:

• Forming an LLC, Corporation, or Partnership (single-member LLCs may delay, but in many cases should not)
• Hiring or planning to hire employees
• Electing S-Corporation status
• Opening a business bank account
• Setting up payroll or registering for state taxes
• Applying for business licenses or permits
• Working with vendors or clients who require an EIN for reporting purposes

The bottom line is that you should apply for an EIN as soon as your business has been registered with the state and before any tax, banking, or payroll activity has taken place. It’s important to apply for an EIN without delay, as waiting to do so can slow everything down and keep your business from being able to operate.

Not every business entity type is required to have an EIN, but you’ll typically need one if:

• Your business has employees
• You operate as a Corporation or Partnership
• You file payroll, excise, or certain federal tax returns
• You withhold taxes on income paid to non-U.S. residents

Even though not required to have an EIN, a Sole Proprietor can benefit from getting one to avoid delays in getting the business operating, protect their Social Security Number from overuse, and keep their business ready to scale.

What is an EIN?

An EIN, often referred to as a federal tax ID number,  is a nine-digit number issued by the IRS to identify a business for federal tax and reporting purposes. It functions much like a Social Security Number for a business.

Once assigned by the IRS, an EIN never expires or is reassigned to another business, even if the company closes. That said, the IRS may deactivate an EIN when a business shuts down, provided all final tax returns are filed and outstanding taxes paid.

In certain situations, such as changing your business entity type (for example, closing an LLC and reforming as a Corporation), you may need to apply for a new EIN. Routine changes, however, such as changing a business name or address, do not require a new EIN.

What is an EIN Used For?

The IRS uses EINS to identify businesses that must file tax returns. A business also needs an EIN to:

• Open business bank accounts
• Apply for business licenses and permits
• Set up payroll and register for federal and state taxes
• Apply for business credit cards or financing
• Complete W-9s for vendors and clients

Just as importantly, using an EIN instead of a Social Security Number helps separate the business from its owner—a key element in maintaining limited liability protection. Blurring that line can expose owners to personal liability if the business faces debts, penalties, or lawsuits.

When is an EIN Required?

According to the IRS, a business generally must have an EIN if it will:

• Hire employees
• Operate as a Partnership or Corporation
• File excise, payroll, or sales taxes
• Change its business structure or ownership
• Administer certain trusts, retirement plans, or estates

A Sole Proprietor with no employees or retirement plans may use a Social Security Number instead of an EIN. Many sole proprietors, however, choose to obtain an EIN to keep business and personal finances separate and reduce SSN exposure.

What’s the Best Time to Apply for an EIN?

In most cases, the IRS recommends applying for an EIN after your business has been legally formed with the state. This ensures the information on your EIN application, such as entity type and formation date, is accurate and final.

A couple of things to remember include:

• Corporations and Partnerships cannot apply for an EIN until formation is complete
• LLCs that apply too early risk IRS processing delays or confusion with similarly named businesses

An exception to these timing guidelines applies to Sole Proprietors who are not forming a new legal entity. They may apply for an EIN at any time.

How Can You Apply for an EIN?

For businesses with a principal place of business in the U.S. or a U.S. territory, the fastest method is the IRS’s online EIN Assistant, which issues EINs immediately upon approval. A couple of things to keep in mind include:

• The application must be completed in one session and will expire after 15 minutes of inactivity
• The applicant must be the responsible party (the person who controls the business) or an authorized representative

You’ll need the following information when applying:

• Responsible party’s name and Social Security Number or Individual Taxpayer Identification Number
• Legal business name
• Business purpose
• Entity type
• Mailing address
• Business start date
• Number of employees (current or expected within 12 months)
• Date payroll will begin (if applicable)
• Reason for applying

Companies with a principal place of business outside of the United States cannot apply online, but can do so by phone, fax, or mail through the IRS.

The IRS does not charge a fee to issue an EIN. Still, accuracy matters. Errors on an EIN application can cause delays in hiring, banking, licensing, payroll setup, and tax filings. If you’re unsure whether you need an EIN or want to avoid costly mistakes, working with a professional can help ensure everything is done correctly from the start.