Do I Need An EIN To Open A Business Bank Account?

As a business owner, one of your first steps is to open a business checking account. This is an essential stage in getting your business up and running and reducing the risk of encountering tax issues.

As you go through the steps, you may wonder if you should just use your personal account, which bank account to pick, and if you need an Employer Identification Number (EIN) to open a business checking account. Below, we break down everything you need to know about EINs and opening business accounts.

Can I Open a Business Bank Account With Just an EIN?

While an Employer Identification Number (EIN) is not universally required to open a business bank account, it becomes necessary for certain types of business entities like partnerships, corporations, or Limited Liability Companies (LLCs) with employees. An EIN is often one of several documents that financial institutions may request.

The required documentation can vary based on your business structure:

• Sole Proprietorships: Typically require a business license, the legal name of the business, any DBA names, and possibly a minimum deposit.
• Partnerships: You should have your business’s legal name, DBA names, partnership agreement, and state partnership certificate ready.
• Corporations: Prepare to provide your business's legal name, any DBA names, and corporate bylaws.
• LLCs: Necessary documents include the legal name of the business, DBA names, and the LLC operating agreement.

For entities like sole proprietorships or single-member LLCs without employees, a Social Security Number (SSN) may suffice for some banks, although obtaining an EIN might streamline the banking process and enhance credibility.

Can I Open a Business Bank Account Without an EIN?

Sometimes, but this is typically reserved for single-person enterprises, freelancers, and sole proprietors who have no employees and are able to use their Social Security number (SSN). Please note that while most freelancers don't need an EIN, the IRS outlines some that do, such as those in the firearm and tobacco businesses or those listed with a non-profit.

Banks usually require you to have an EIN, although this varies depending on the financial institution and their policies, so you'll have to check these before applying.

Sole proprietorships and single-member LLCs are usually taxed as individuals and aren't required to have an EIN, so banks may allow them to open an account with only an SSN. Other types of businesses may be able to use documentation besides an EIN, but just applying for one may be the easier and faster option.

What Is An EIN?

An EIN serves as a Federal Tax Identification Number, aiding in taxation and employment processes among other administrative necessities. It identifies your business entity similarly to how an SSN identifies an individual, ensuring that your enterprise is recognized as a separate legal entity by the IRS and financial institutions.

Why An EIN Is Important

Just like an SSN identifies an individual, an EIN identifies businesses. Generally, it's used for business taxation (based on classification, revenue, employees, and more) and hiring purposes, and without it, you will be viewed as a private individual taxpayer (such as when you're a sole proprietor or an LLC) by the IRS.

Benefits of an EIN:

• Legitimacy and Credibility: Necessary for opening business bank accounts and establishing trust with banks and vendors.
• Business Loans and Credit: Facilitates loan applications and business credit card approvals.
• Employee Hiring: Mandatory for hiring employees and adhering to employment tax regulations.
• Identity Protection: Reduces the need to use your SSN, lowering the risk of personal identity theft.
• Financial Separation: Essential for distinguishing between personal and business finances, which is crucial for tax reporting and asset protection.

Even though sole proprietorships and single-member LLCs don't require an EIN to open a bank account, they will require one if they plan to hire employees and submit tax returns.

As you can tell, getting an EIN is important, even if you're a sole proprietor. Once you complete the LLC process, your next step should be to obtain an EIN from the IRS.

Pros & Cons of Opening a Business Bank Account Without an EIN

Not having an EIN can potentially limit your options when it comes to banking and business loans at local banks. It can also complicate the separation of your business and personal finances when both accounts are tied to your Social Security number. This can lead to challenges during tax season and potentially trigger IRS audits. Failing to apply for an EIN when needed can result in tax penalties.

Furthermore, conducting business under your Social Security number puts your personal credit at risk in case of business issues. Using a personal checking account for your business is not recommended.

Obtaining an EIN offers several benefits, including enhanced credibility with banks and vendors, expedited business loan approval, and the opportunity to build your business credit. Additionally, it allows you to hire employees, facilitating business growth.

Who Is Required to Have an EIN

The IRS mandates obtaining an EIN for businesses, except sole proprietors or single-member LLCs. Additionally, you must secure an EIN if your business meets any of the following criteria:

• Employing staff
• Operating as a corporation or partnership
• Filing specific tax returns: employment, excise, or alcohol, tobacco, and firearms
• Withholding taxes on non-wage income for nonresident aliens
• Managing a Keogh plan
• Being part of a bankruptcy proceeding
• Purchasing or inheriting an existing business and operating it as a sole proprietorship

Furthermore, if you are associated with any of the following entities, you must also obtain an EIN:

• Trusts, excluding certain grantor-owned revocable trusts, IRAs, and Exempt Organization Business Income Tax Returns
• Estates
• Real estate mortgage investment conduits
• Nonprofit organizations
• Farmers' cooperatives
• Plan administrators

How to Get An EIN

Getting an EIN won't take as much time as you think. Business owners can apply for one through the IRS online, by phone (1-800-829-4933), or by filling out IRS Form SS-4 and submitting it through fax or mail.

Benefits of Opening An Account With An EIN

Business owners who already possess an EIN enjoy a broader range of banking options. You can opt for a well-established large bank known for its solid reputation or choose a smaller credit union that offers a more personal touch. Regardless of your preference, having an EIN typically streamlines the account qualification process.

When you open a business bank account with an EIN, you can also:

• Segregate your personal and business finances, which is essential for effective record-keeping and simplifying tax obligations. This separation can safeguard your personal assets in case of legal issues. Additionally, displaying your business name and branding on the account enhances your professional image in the eyes of potential clients and investors.
• Begin building business credit, starting with a bank account linked to your business. Subsequently, you can explore options like obtaining a business credit card from the same financial institution. Since many small-business credit cards require an EIN, you'll already be prepared to initiate this process. Responsible spending and timely debt repayment will contribute to the growth of your business credit score.

Alternatives to Opening a Bank Account With An EIN

If your business doesn't necessitate an EIN, and you wish to open a bank account without one, you'll usually have to resort to opening a personal checking account and using it for your business activities. However, this isn't the recommended approach.

For the majority of small-business owners, the simpler and more advisable solution is to obtain an EIN through the IRS website. This process is cost-free and enables you to manage your business finances with greater efficiency.

Bottom Line

We recommend getting an EIN so you can qualify for the best business bank accounts. Our favorite reputable business checking accounts include banks that accept businesses with or without an EIN:

• BlueVine: Known for its fee-free structure and earning interest on balances.
• Azlo: Offers integrated invoicing features and digital payment options, suitable for freelancers and digital nomads.
• Lili: Tailored for freelancers with features like tax bucketing and expense categorization.
• NorthOne: Great for small businesses looking for detailed financial tracking and budgeting tools.

Obtaining an EIN is a straightforward process that offers significant advantages for most businesses, from enhanced credibility to easier financial management. While you can technically operate some types of businesses without one, the benefits of having an EIN usually outweigh the minimal effort required to obtain it.

For detailed guidance on obtaining an EIN and choosing the right bank for your business needs, visit Do I Need An EIN To Open A Business Bank Account and our Business Bank Account Comparison Guide.

Frequently Asked Question

What is an EIN?

An Employee Identification Number (EIN) is used to identify a business entity and is also known as a Federal Tax Identification Number.

Do I need an EIN as a business owner?

In many cases, yes. An EIN is used for multiple reasons such as banking, business, hiring employees, filing employee tax returns, and more. Even certain freelancers are required to obtain an EIN.

What documents do I need to open a business bank account?

The specific documentation you'll need for your business may vary based on its structure. However, in most cases, you should prepare the following items:

• Employer Identification Number (EIN) or Social Security Number (if you're a sole proprietor).
• Fictitious Business Name Certificate or Doing-Business-As (DBA) Certificate.
• Business Formation Documents.
• Organizational Documents, including ownership agreements.
• Business Licenses.
• Government-Issued Photo ID (e.g., passport or driver's license).
• Your Contact Information.
• Business Revenue and Tax Information (if applicable).

How much does it cost to get an EIN?

Securing an EIN incurs no cost, and you have several methods to obtain one. You can fill out the IRS Form SS-4 and submit it either through fax or mail directly to the IRS. Alternatively, applying for an EIN via the IRS website is a swift option. The online process usually requires around 10 minutes, eliminating the need for any paper forms. You'll instantly receive your EIN through the website, making it immediately usable for the majority of your business activities. However, it's important to note that there might be a waiting period of about two weeks before the EIN becomes valid for electronic tax submissions.

About The Author

Andy Chang

Founder of TheCreditReview

Andy Chang is the founder of TheCreditReview, a review site started in 2017 that is dedicated to helping consumers find the best companies in financial services. Andy is passionate about financial education and wellness, and helping others reach financial freedom. He consistently writes about topics ranging from credit to banking and lending.

Articles by Andy Chang

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