SS-4 IRS Application for an Employer Identification Number
An employer identification number (EIN) is the business equivalent of a Social Security number. A unique identifier is assigned to the business for use in communicating and complying with the Internal Revenue Service. Just like a Social Security number, it is a 9 digit number with the first two digits as the prefix.
To obtain the EIN, the applicant must fill out Form SS-4 which is often referred to as the Application for an Employer Identification Number. Some lawyers and accountants will use the phrase Federal Employer Identification Number or FEIN. The term FEIN is still used by some state secretaries when filing the annual documentation for a business.
This article will explain the actual form and the application process and the various methods used. But prior to going into those details, there are certain preliminary requirements you need to address in order to fill out the application correctly.
SS-4 Preliminary Steps
When going into business, most new entrepreneurs fail to spend adequate time in addressing what type of entity to operate. There are four basic types of entities and they are as follows (I include links to articles I’ve written going into detail about these types of entities):
- Sole Proprietorship – as a single owner operating under your own name and possibly another pseudo name.
- Partnership – this is an entity where more than one owner will be involved.
- Corporation – a state allowed form of operation providing some legal protection for an owner’s personal wealth.
- Limited Liability Corporation – a hybrid of both the partnership and the corporation; should only be used by those willing to spend the time and resources to develop a detail partnership agreement. I do not recommend this form of business status unless you are well read on the various legal and tax implications; i.e. you should be a sophisticated entrepreneur before you explore this form of legal status. It is the most complicated status and has a multitude of tax implications.
Please do not just listen to your friends and their thinking about what is best. Seriously, this is a big decision and impacts you for a very long time and it also sets the relationship with the Internal Revenue Service and your corresponding state department of revenue with the types of forms and compliance issues. You need to discuss this with your CPA first, then an attorney and then your CPA again. It is worth spending the time and dollars (approximately $700 to $1,000) to figure out which type of entity status you will operate.
Once you have determined the form of operation it is now time to get legal with your state’s secretary or state corporation commission which authorizes your business legal existence. I often refer to this as going to the hospital to give birth first then you get your identification number just like how babies are handled.
Once established, it is time to get your identification number.
Believe it or not, the application is relatively simple to process. You are asking the IRS to assign you an identification number for use in identifying yourself with them. This same number is used by your state’s tax department, the bank, the state’s legal departments, courts and many others. It is your businesses’ unique identifier. The form is ONE page long.
For the IRS, they are really interested in three pieces of information. The first is the legal name, address and contact information. In addition to the name, they really want to know who is legally responsible for this entity. That is, if the business fails to comply with the Internal Revenue Code, who do they contact to force compliance? The second piece of information they are interested in is ‘What type of business entity are you?’
The application actually has 16 different types of entities. Even your local government must have an identification number. If you belong to a church or to your condo association, they too have an identification number. But the most common are the four types I write about above.
As I mentioned above, if you select the Limited Liability Corporation status, then the tax code allows one of several different types of tax status (one of the 16 in the list). This is another example of how the LLC is a sophisticated entity status and should only be used by those who are well read on the subject matter. If you feel apprehensive about using the LLC, I encourage you to start out with one of the other types of entity status and you may convert to an LLC in the future – totally legal.
The third and final piece of information the IRS needs is ‘Why do you need an EIN?’ For most folks, it is a straight forward ‘I started a new business’. But in addition to this the IRS will want to know if you are going to have employees. This is important as it sets the requirements for filing certain forms by certain dates. I explain much of this in the employer tax compliance section of the website.
The form has 18 questions and several of them are simple yes or no. It is straight forward and relatively simple form to fill out. The interesting part about this is that there are several different methods to file the form.
SS-4 Filing Methods
There are three different methods to file Form SS-4 with the IRS. The first, easiest and fastest method is via online at the IRS.GOV website. Over in the tools section about the 3rd line down is the apply for an Employer Identification Number link. From there, simply follow the instructions.
The second method is of course filing a paper form with the IRS. This is the form’s link: SS-4. This method gets you an EIN in about four weeks.
The third and not frequently used but faster than the traditional mailing is via fax. This method gets you an EIN within about five business days.
THIS IS VERY IMPORTANT. FIRST RETAIN A COPY OF YOUR ACTUAL APPLICATION. THEN RETAIN A COPY OF THE ‘EIN CONFIRMATION NOTICE’. PLACE AN ELECTRONIC COPY IN YOUR PERMANENT FILES ON YOUR COMPUTER, MAKE A BACKUP COPY ONTO A THUMB DRIVE; PRINT A PAPER COPY AND PLACE THIS IN YOUR CORPORATE BOOKS UNDER A ‘TAX COMPLIANCE’ TAB.
I can’t emphasize enough he importance of making several electronic and paper copies of not only the application but the EIN CONFIRMATION NOTICE which is the response from the IRS. This notice informs you of which particular tax form for income tax purposes is required and the respective due date. In addition, if you have employees or will have employees, the notice informs you of the filing requirements for Form 941 and Form 940.
If you are not familiar with payroll requirements, I walk you through a basic payroll and explain the various terms and requirements.
In summation, Form SS-4 is an application for a Federal Employer Identification Number or EIN. Sometimes it is referred to as FEIN. You should first spend some time determining the entity status for your business operation then once you have fulfilled your state’s legal registration process you may then apply for an EIN. The application process is best done online at the irs.gov website. Don’t forget to retain a copy of your application and your EIN Confirmation Notice as this document is similar to your Social Security Card. Act on Knowledge.
© 2015 – 2022, David J Hoare MSA. All rights reserved.