If you're starting or growing your practice, chances are you've come across the term EIN—but when exactly do you need one? An Employer Identification Number (EIN) is a unique nine-digit number issued by the IRS to identify your business for tax purposes. Whether you’re hiring employees, paying taxes, or simply building credibility, knowing when to obtain an EIN is essential.
What is an EIN?
An EIN is a nine-digit number that the IRS assigns to identify your company for tax purposes. Think of your EIN as your practice's Social Security number. Whether you're hiring employees, opening a business bank account, or filing tax returns, your EIN is how the IRS tracks your practice activities.
When Do You Need an EIN?
Here are the key times when you'll need to apply for a new EIN:
- You’re Creating a New Entity: If you're starting a new business entity—whether it's an LLC, corporation, partnership, or nonprofit—then it's time to apply for a new EIN. Any new business formation automatically requires a fresh EIN, even if you already have one from a previous or related business.
- Incorporating a Sole Proprietorship: While many sole proprietors operate under their Social Security numbers, you'll need a new EIN if you incorporate or file as an LLC. This new number will replace your personal SSN for business-related tax filings, which helps separate your business and personal finances—a big benefit for tax planning.
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Changing Your Business Structure: If your business changes its legal structure, the IRS requires you to get a new EIN. For example:
- If you’re operating as a sole proprietor and decide to incorporate and become a corporation or S Corporation, you'll need to apply for a new EIN.
- If your sole proprietorship turns into an LLC (Limited Liability Company) with multiple members (a partnership), you'll also need a new EIN.
- Business Ownership Changes: If you buy an existing business or take on new partners, the new owner needs a new EIN.
- Hiring Employees: If you’re hiring employees, you’ll need an EIN to manage payroll and file employment taxes, even if you’re a sole proprietor. The IRS uses this EIN to track your withholding taxes (like Social Security and Medicare) and other employer obligations.
- Bankruptcy or Reorganization: Filing for bankruptcy or undergoing a business reorganization can also necessitate a new EIN. If you're liquidating or forming a new entity under bankruptcy rules, you’ll need a new EIN for the newly restructured entity.
When You DON’T Need a New EIN
Sometimes a business undergoes changes that don’t require a new EIN. Here are a few examples:
- Business name changes: Changing your business name? No need for a new EIN! Just let the IRS know about the name change.
- Change of location: Moving your business to a new address? Same EIN. Simply update your business address with the IRS.
- Changes to business ownership within a corporation: If your corporation remains the same legal entity and ownership simply changes hands (for example, you sell stock), you do not need a new EIN.
How to Apply for a New EIN
Applying for a new EIN is pretty straightforward, and the best part? It's free! You can apply directly through the IRS via EIN Assistant EIN Individual Request - Online Application. It’s the fastest way to get a new EIN, and you’ll receive it immediately upon completing the application.
The IRS will send you Form CP-575 to confirm your EIN, which includes important information like your business name and the tax forms your business is expected to file.
Why does Heard request a copy of the EIN letter?
Heard requests a copy of your EIN letter to ensure accuracy when filing your annual tax return. The IRS requires that you always use the full legal name you entered on Form SS-4, line 1, and the EIN on all business tax returns you file with the IRS.
Can’t locate your EIN?
If you applied for and received an EIN but can’t locate it or have since misplaced it, you can request a confirmation of your EIN from the IRS by calling the Business & Specialty Tax Line at 1-800-829-4933.