An EIN is an essential part of doing business in the United States, and there are many reasons why an EIN is necessary for a business entity to succeed, including:
- EINs allow individuals to set up legal entities such as corporations, trusts, and LLCs, separating them from personal tax liabilities.
- An EIN may help protect a business owner’s SSN. Although a sole proprietor may operate a business in the US using their SSN, an EIN protects the owner, especially in cases where they need to share their TIN with a vendor, client, or others for tax purposes.
- An EIN is required to open a business bank account, secure loans, open lines of credit, or obtain a business credit card.
- An EIN is required to hire and pay employees and obtain business licenses or permits.
- EINs are required for certain tax-deferred pension plans.
- EINs are used to file business taxes.
Most new business entities will require an EIN, but specifically, according to the IRS, any business that meets the following criteria:
- The business entity operates as a corporation or a partnership.
- The business entity has employees.
- The business entity has a Keogh plan.
- The business entity must pay employment, excise or alcohol, tobacco, and firearms taxes.
- The business entity must withhold taxes on non-wage income paid to non-resident aliens.
Business entities that operate in specific industries or do business with organizations in those industries must also have an EIN. These include estates, certain trusts, farmer coops, non-profits, mortgage loan investment vehicles, and plan administrators.