Are you planning to open a Shopify store?
Becoming an eCommerce merchant includes more than selling high-quality products and applying the best digital marketing strategies.
In addition to pleasing your customers and search engines, you must be aware of the legalities of selling products online.
You may wonder about your tax obligations as a Shopify seller, which leaves you asking, “do I need an EIN number for Shopify?”
This article will answer what’s an EIN, whether you need one for your Shopify or not, its benefits, and the methods to apply for one.
Let’s get started!
Table of Contents
What Is an Employer Identification Number (EIN)?
Just as an SSN (Social Security Number) is an identification number for U.S. citizens, an EIN (also referred to as a federal tax ID number) is for U.S. businesses.
An EIN is a unique, nine-digit number the IRS (Internal Revenue Service) gives. The primary purpose of an EIN is to report a company’s employment taxes.
Both SSN and EIN don’t expire and are limited to one entity (individual or business). When it comes to an EIN, the entity refers to the person who controls or owns the business entity.
Do You Need an EIN for Your Shopify Store?
It depends on how you’re running your Shopify shop.
If you’re a sole proprietor and don’t have any employees, you’re not obligated to have an EIN, as you can use your SSN.
On the other hand, if your Shopify store has multiple employees, you need to have an EIN. Businesses with employees, whether online or physical, are subject to payroll taxes. You need an EIN to pay for this type of tax.
Additionally, if your Shopify store operates as an LLC, you must have an EIN. However, you don’t need an LLC to sell on Shopify. Nevertheless, there are several benefits of forming an LLC.
Benefits of Having an EIN
Here are several benefits an EIN brings you and your Shopify startup.
1. Prevent Identity Theft
If you have an EIN, you don’t need to give your SSN to anyone you conduct business with, such as suppliers or clients.
As a result, you can maintain the privacy of your SSN, significantly reducing the odds of identity theft. Protecting your SSN will also make it difficult for unwanted individuals to access your savings or profits.
2. Establish Business Credit
Your company’s history of financial responsibility will determine your business credit. Financial responsibility refers to your business credit report, which contains the following:
- Your business credit card activity
- Payments to both vendors and suppliers
Every time you provide your EIN when applying for credit, it’ll show up on your business credit report. If you pay on time, your business credit score will increase. In addition, high business credit will give your company reasonable rates on business loans and favorable terms from vendors and suppliers.
3. Easily Hire Employees
You need an EIN to withhold taxes from your employees’ paychecks and set up payroll. When you hire employees in the future, having one in advance will provide convenience to you and your potential employees.
Therefore, if you have plans to scale up your Shopify startup, get an EIN now.
4. Conveniently File Business Taxes
Your online store must file a tax return every quarter or year, depending on your accountant’s recommendations.
An EIN allows you to pay any business taxes online to the IRS and your state government. You can also create important payroll and tax documents, such as W-2s, with your EIN.
How to Apply for an EIN
As you can see, there’s no harm in having an EIN for your Shopify store, and you’ll enjoy the benefits above.
What’s more, the EIN application process is straightforward and free!
Process your EIN directly through the IRS website to ensure you won’t run into any hassle or scam.
To apply for an EIN, follow these two simple steps.
Step 1: Check Your Eligibility
Before anything else, you need to assess your eligibility.
Here are some pointers to keep in mind:
- Online application is available if your principal business is in the U.S. or U.S. territories.
- You must have a valid Taxpayer Identification Number, such as ITIN (Individual Taxpayer Identification Number) or SSN.
- You shouldn’t have an existing EIN for this business.
Step 2: Choose a Convenient Application Process
If you’re eligible to apply for an EIN, you can choose among the following application processes.
Keep in mind that your chosen process will determine the duration of time for your EIN to be issued.
The IRS advises every online business owner to apply for an EIN online.
If you want to process your application online, you must complete it in a single session. This is because you can’t save your progress and return at a later time.
Also, your online application process will expire after 15 minutes of idle time. In this case, you need to start over.
Fax or Mail
If you prefer using pen and paper when processing important files, you can apply for an EIN via fax or email.
Start by printing and filling out Form SS-4. Be sure to go section by section and fill out every appropriate blank.
After filling out the form entirely, fax or mail it to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
Don’t forget to include a return fax number.
Businesses and applicants who reside outside the U.S. can apply for an EIN via telephone –– at 267-941-1099.
If you want to use this method, prepare to answer some questions that are based on Form SS-4.
If you want someone to answer the questions for you, like a native English speaker, fill in the Third Party Designee section and sign it. The Third Party Designee won’t be the designee once you have an EIN.
You’ll receive your unique EIN over the phone, so prepare to write it down. Also, keep your Form SS-4 as the IRS may ask you to send it to their appropriate tax office.
Regardless of how you’re running your Shopify startup, take note that you’re still obligated to collect sales tax. Hence, depending on your state’s tax laws, you need to get a seller’s permit or a resale certificate.
In addition to a seller’s permit or a resale certificate, having an EIN is one of the most convenient ways to legitimize your Shopify store.
Now that you’re on the good side of the IRS, the next step is to know six proven tactics to promote your Shopify business!
Mo Sheikh is an entrepreneur, developer, and marketer. As the Founder of Adaptyve Digital, he helps teach ecommerce business owners ways to manage, grow, and scale their business.