With the latest serious hacker intrusions, companies need to pay serious attention to their privacy and security technologies. One of those often overlooked is a company’s Employer Identification Number (EIN).
First, a little history on an EIN and why it’s important. An EIN is a nine-digit number assigned to businesses and organizations by the Internal Revenue Service that functions like a “work social security number.” Created in 1974, EINs are used by U.S. businesses for tax and identification purposes.
Most businesses have one, and according to IRS guidelines, if your company has employees, operates as a corporation or partnership, files Employment or certain other tax returns, has a Keogh plan or is involved with specific types of organizations (listed in full on IRS.gov, but including Estates, Trusts, or Non-profit), you will need an EIN.
Certain types of small businesses, such as some Sole Proprietorships, may not be required by law to obtain one. However, exempt business owners may still find EINs to be useful or necessary for extra identity protection or in order to meet certain state tax, or license requirements.
Related Article: 5 Questions to Ask When a Security Breach Has Occurred
What Are the Security Risks With Having an EIN?
EINs are convenient and a necessary item for most businesses, but the use of them brings up concerns about security risks. Just like Social Security Numbers and credit card information, Employer Identification Numbers need to be kept secure by their owners.
Businesses are not infrequently targeted by criminals who use stolen EINs to commit various forms of tax fraud, resulting in over 2 billion dollars of fraudulent tax refunds in 2013 alone. Although the IRS has systems in place to identify fake EIN numbers, stolen EIN numbers are much harder to immediately detect.
Improving your company’s network security is one of the biggest things you can do to help keep your company’s information, including the EIN, secure.
Wait! I Use My SSN for Business Transactions.
Keep in mind that the use of an EIN rather than your own SSN for business-related dealings does add an additional layer of personal identity theft protection; small business owners who are able and choose to use their SSN for business transactions open themselves up to personal identity theft.
An EIN circumvents the need to tie such a personal piece of identifying information in with your business.
Related Article: What Target Should Have Done to Prevent Their Security Breach
How Do You Obtain an EIN?
EINs are obtained through the IRS through a free and relatively easy process. Applications for an EIN can be completed online and an EIN number issued immediately; there are also the options to send in an application through fax or mail or complete the process via telephone.
If there is an occasion where your business needs to file for a new EIN—if the ownership of the company has changed or if you form a partnership, for instance—the IRS has guidelines for this process as well.
Once your business has an EIN, the number is meant to be used for business transactions, such as setting up bank accounts or filing business tax returns. EINs can also be used to help establish your business credit history.
You’ll want to check into the specifics on the IRS page to see if your business needs an EIN, but most businesses will either be required to get one or need one for certain transactions, so it’s important to be aware of their use in the business world. The IRS uses EINs for tax-related purposes, and obtaining a number through the IRS is fairly straightforward.
Some security risks related to EINs exist, but by keeping your network secure and being vigilant about its use, you can cut down on the possibility of being a victim of tax fraud. EINs are another tool to help you run your SMB smoothly and take advantage of the most business opportunities.