Amongst the myriad of abbreviations and technical terms that come with US taxation, is the EIN, an Employer Identification Number. The use and application of an EIN tends to affect many US citizens in New Zealand, but is not always well understood.

In our short article today, we’ll discuss EIN’s, when they’re needed and why you may receive one.

What is an EIN?

As mentioned above, an EIN stands for an Employer Identification Number. This is a form of TIN (tax identification number), but is only issued to entities such as trusts, companies or other entities. A living person is never issued an EIN, but rather a social security number or ITIN.

The name of the EIN does tend to confuse many regarding its purpose, as an EIN is actually not at all related to being an employer. Instead, this is outdated terminology from when the EIN was originally designed (being for employers), to now being a broad ID number for any entity.

So, to clarify, an EIN is simply a tax identification number for any dealings with the IRS, made by an entity of any kind, US or foreign.

Why is an EIN needed?

Well, just as any interaction between a person and the IRS (or IRD for that matter) requires a SSN or IRD number, the same applies to entities.

An EIN is a number assigned to an entity which has an interaction with the IRS, in order for the IRS to recognise the entity.

This might be a trust that needs to file a tax return, or a company which owns some US investments and has withholding tax, as just some basic examples.

As an identifying number for an entity, the EIN is then used to file tax returns for an entity, pay tax in its name, or even to obtain extensions of time for filing.

Why might I ever need an EIN number an entity in New Zealand?

Generally speaking, most New Zealand based US citizens who own an entity which needs reporting to the IRS, will at some point need an EIN to include that entity in their tax returns.

For example, those who own a family trust, are required to include this trust in their annual US tax return. This trust, being an entity, needs an EIN in order for the IRS to recognise it uniquely. Your tax professional can help you obtain an EIN for any entity you need to file, which is a very basic process.

For most US citizens living in New Zealand, KiwiSaver is an annual filing requirement as part of their tax return. As part of this tax return filing, the entity, being KiwiSaver, is disclosed to the IRS and therefore is required to have an EIN.

Do I need to apply for an EIN

Only in some cases. For an entity which you control, and has some level of US filing requirement (such as a New Zealand family trust), then you or your tax professional should apply for an EIN number on the trust’s behalf. Once issued, this number is then used as an identifying number for the trust on all future documentation.

The EIN application process is quick and straightforward, and done providing Form SS-4 to the IRS, who can usually issue an EIN instantly over the phone.

However, for those with KiwiSaver, the process is a little different.

Of course, your average New Zealand investor into KiwiSaver doesn’t own or control the KiwiSaver trust, and certainly doesn’t have the authority to apply for an EIN on behalf of the KiwiSaver provider.

So, in this case, your tax professional will likely file the KiwiSaver trust forms, with the EIN box left blank and empty, which prompts the IRS to issue a unique EIN for your personal KiwiSaver trust filing (without having actually applied for an EIN number)

The EIN is then used on all future KiwiSaver filings for the taxpayer.

Does having an EIN mean I also have a filing obligation?

No, not at all. As mentioned above, an EIN is simply an identifying number for an entity, and doesn’t create any filing obligation.

It’s a bit like having an IRD number, but not having any income, the IRD number doesn’t mean you’ll need to file an NZ tax return.

It should be noted, that the IRS letter in which they send a newly issued EIN on, has some very misleading wording. The letter suggests that the EIN now means a tax return must be filed by a certain date. Whilst this is intended to be helpful information for the taxpayer, it is poorly worded and can leave some to believe that they now need to action a tax return.

How will I receive my EIN?

If your tax professional has applied for an EIN for you, then they’ll usually be able to provide that in writing or verbally.

If however an EIN is issued for a KiwiSaver (whereby no actual application was filed), then the IRS will usually send a letter with the KiwiSaver name, the taxpayer name, and the EIN.

Summary

As you can see above, an EIN can seem a little complicated due to its naming, and when one is needed, but is actually straightforward once you understand the basics.

If you’d like to further discuss anything in this article, reach out to our US tax consultants – info@usatax.nz.