How do you know if your ecommerce business requires an employer identification number, or EIN? If you’re not familiar with the term, you might think this kind of extra paperwork isn’t necessary for your line of work. However, EINs are loaded with benefits for both small businesses and their owners that you’ll carry with you for years to come. Let’s take a look at some of the major ones.
First up — what is an EIN?
Also referred to as a Federal Tax ID, an EIN is a federal identification number issued by the IRS to identify a business entity. Many entrepreneurs use their social security number (SSN) as their identification on government forms and official documents, but it is often recommended that EINs are used instead. This is because an EIN is much less sensitive than an SSN, which risks losing much more if stolen from identity theft. That being said, EINs are only used as federal identifiers so you will not need to guard them as closely as you would an SSN.
How do I know I need an EIN?
Typically, if your business falls into any of these categories having an employer identification number will be a necessity.
- Your business is new.
- You’re planning to hire, or know you will hire, employees.
- You’re incorporated as either an LLC or corporation.
- You know you will open a business bank account and want to establish business credit.
- You’re planning to change your organization type.
What if I’m not planning to hire? Do I still need an EIN?
Entrepreneurs that are not planning to hire may avoid filing for an EIN because it doesn’t seem necessary right now. However, chances are still fairly likely that you’ll be doing at least one of the remaining bullets on that list especially if your business is incorporated.
Once you incorporate your business, it becomes its own legal entity with you as its employee. Having an EIN is required in order for the IRS to ensure that the company collects payroll tax and stays in compliance.
Beyond the bullet list above, EINs are also useful to have when filing annual tax returns, establishing pensions, retirement, or trust plans, and for purchasing other businesses (if you ever decide to head in that direction!). Best of all, the identifier never needs to be reissued or expires. So, even if you think it’s not necessary to file for an EIN now it’s a good idea to make it a priority to file sooner rather than later so your ecommerce business can enjoy these benefits as it continues to grow.
Have any other questions about EINs? Let us know in the comments!
About the Author
Deborah Sweeney is the CEO of MyCorporation.com, which provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, DBAs, and trademark and copyright filing services. You can find MyCorporation on Twitter at @MyCorporation and Deborah at @deborahsweeney.