If you’re forming a C-Corp and don’t plan on having any employees or taking any money out of the business then I suppose technically you don’t need a Federal Employer Identification Number (EIN), but if you are forming an S-Corp or any company where you plan on pulling any money out then one of the requirements is having a valid EIN. Why? Remember we talked about the need to do payroll even if it’s only for yourself? The EIN is required for that.
Note that even if you think you don’t need an EIN there isn’t any downside to getting one. Once you use it you’ll need to file paperwork forever, but having it without using it imposes no penalty. Luckily getting an EIN is super easy to get online and is 100% free! Follow the steps below to get yours now.
First open a browser to https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers
Just click the big “Apply for an EIN Online” button and power through it.
The next page lists a few simple steps telling you what’s ahead and presents a button labeled, “Apply Online Now”. Go ahead and click that. The page after that looks different, but really just repeats nearly the same information and ends with a button labeled, “Begin Application”. I guess the IRS doesn’t trust you to read it the first time? Go ahead and click it and we’ll get started.
Step 1: Identify
Choose Your Legal Structure
You can get an EIN for any of the legal structures on this page because any of them can have payroll. Just select the one that best represents your company. I nearly always create corporations so I’ve selected that below.
Choose Corporation Type
This next page is where you would choose the type of corporation for which you need the EIN. I usually create S-Corps so that’s what I’ve chosen below. It’s an odd paradox that to apply for the S-Corp designation you need an EIN and yet the EIN application has an option for an S-Corp, which you obviously can’t be yet… But the bottom line is that if you plan on being an S-Corp go ahead and choose it.
Aha! Paradox explained! If you’ve chosen S-Corp the next page explains the paradox and provides some information about it. Read through it if you want and find your way to the “Continue” button to move forward.
Why do you want an EIN?
The next page simply asks why you are requesting an EIN. It’s mostly self explanatory and since I always request one when I create a new company I nearly always end up choosing the first radio button as below.
Step 2: Authenticate
This next section of screens verifies who you are. Note that the IRS will look up your social security number and compare it against the name you enter and if they don’t match you won’t be able to continue. I’ve entered an obvious fake SSN below and would get the failure screen so make sure you enter your real one when you do it.
The radio buttons at the bottom allow you to declare if you are requesting the EIN on behalf of your company or someone else’s. I suppose you could go into business getting EIN’s for other people but more likely you’ll just be helping out a friend since this process is free.
Step 3: Addresses
The next page collects the company addresses, both physically located and mailing addresses if different.
Step 4: Details
I think it’s odd that they ask the name of the company after the address but here it is on the “Details” page. Note that the only punctuation marks allowed for the legal name are hyphen “-” and ampersand “&”. I’ve made that mistake before and it will force you to correct it if you add anything not allowed. It also disallows endings like “LLC” since those are Limited Liability Companies and not an S-Corp as you’ve chosen. There are a few other simple rules for the following Trade Name field as well.
The date the corporation was started should be the month and year of your incorporation.
Tell us more…
After you click continue you’ll be asked a few questions about your S-Corp. If you’re a company that involves moving large things you may have a truck large enough to hit 55,000 lbs. but that’s probably not most of you. Since a tennis racquet guitar is fairly light and I don’t own a truck it’s not me either. And while some may enjoy gambling personally, if it’s not part of your business select the “No” button for that one too.
The Federal Excise Tax Return is the form you must file if you are subject to certain special taxes as part of your business. These are special taxes the government imposes on some goods and services and covers things from arrow shafts to fuel to indoor tanning services. For the vast majority of businesses you don’t need to file form 720 but you should take a look at the list just in case: https://www.irs.gov/instructions/i720#en_US_202209_publink64240cd0e154.
The alcohol, tobacco or firearms question is self-explanatory.
For the employee question you will most likely select “Yes” if you plan on having employees or taking any money out of the business for yourself. Remember that you can’t just draw money out of the company without also having payroll for yourself or you’ll “red flag” your tax returns and get on the short list for an audit. Technically an officer of the company (you) is also an employee so plan on payroll to keep things legit. If this is a side business and you plan on reusing any profits to grow for at least 12 months before taking any out for yourself you can check “No”.
Describe your employees.
After clicking “Continue” there is yet another page of details to get through. This one concerns the payroll for your employees and is the government’s way of estimating how often you’ll need to submit payroll installments. If you’ll have lots of payroll you’ll need to submit more often, less is less often.
I’ve entered “1” for the number of other employees (non-agricultural) to represent myself since I’m the only one I expect to pay in my company for the next 12 months. If that ends up changing it’s not a problem – just put your best guess here.
Will your employment tax liability be under $1,000 in a calendar year? Let’s do some simple math on this: From my previous article on Saving Thousands by Incorporating your Business we can see that for every $1,000 in payroll we write to ourselves we only get to keep the net amount of $791.28 and it actually costs us $1,076.50. Of that total amount we need to hold out $285.22 for employee and employer taxes (1076.50 minus the net paycheck portion of 791.28 equals 285.22). If we take $1,000 and divide it by $285.22 we get the number of $1,000 paychecks we can write: 1000 / 285.22 = 3.51.
3.51 paychecks times $1,000 each equals $3,510. That’s our magic payroll number then. If you expect to pay less than $3,510 as salary to yourself for the year then select the “Yes” radio button, otherwise select the “No”. Selecting “Yes” means you can file annually instead of quarterly which is less paperwork, but if you’re not sure it’s probably better to be optimistic and select the “No” as I’ve done. It will mean more paperwork but it’s really not that bad and a future article will show you how to get through it.
What does your business do?
The next page or two are just collecting information on what your business does. You’ll have to read through the list and select the one most appropriate for you. Since I’ll be making guitars I’ve selected manufacturing. I’m guessing an electrician or plumber would go under Construction as a “specialty trade contractor” and something like a music teacher or programmer would go under Other.
The next page or two will depend on your selection here and the questions may be a bit different than what I have below depending on your selections. For “Manufacturing” they just want to know what I’m making. For “Other” they will probably ask for a short description, like “software programming”.
Confirmation
I always prefer to get my EIN as a pdf file so I can save it somewhere and it makes reprinting it easy as well. Once you hit “Continue” it will be generated and you’ll get your pdf immediately. That also means that you’ll be on the IRS’s radar so I didn’t hit continue for this tutorial. Sadly I don’t actually make tennis racquet guitars. I’ll leave that to the professionals.
So that’s it! In about 10 minutes you can get your EIN number that you’ll need for payroll and to apply for S-Corp status if you’re electing to do that. It’s not difficult and just requires a bit of thought in a spot or two. Remember to save your letter someplace safe since the IRS will not send you another, so if you lose your number you’ll have to do this all over again and you may get notifications for your old number as well.
10 minutes and free! That’s the best deal you’re going to get from the IRS!