I went to set up an LLC through one of those online formation services. Everything seemed fine until checkout, where they added a $99 fee for 'EIN assistance.' I know the IRS issues EINs for free, so I skipped it and applied directly on the IRS site. Took me about 15 minutes and cost nothing. Why do these companies keep doing this? Is it just a common upsell that people fall for?
LLC Formation
A formation company wanted to charge me for a free EIN
It's an upsell.They rely on people not knowing they can get it free from the IRS. I've seen the same thing with registered agent services and 'compliance kits.'
Honestly,for some people the $99 is worth it because the IRS site can be confusing if you've never dealt with it. But for a single-member LLC with no employees, the online application is straightforward. You did the right thing.
I paid it. Didn't realize until later. Felt pretty stupid, but it is what it is.
The bigger issue is that some of these companies will apply for an EIN on your behalf and put themselves down as the responsible party or third-party designee, which can cause problems later if you need to update information or if they go out of business. Not always, but it happens.
Wait, is that true? How would you even check who the responsible party is on an EIN?
You can request a copy of the EIN confirmation letter (CP 575) from the IRS. It lists the responsible party. If it's not you, that's a red flag.
I used one of those services and they charged $75 for the EIN. I didn't know any better. Live and learn.
The IRS site is free but it's only available during certain hours and sometimes the session times out. Still, not worth $99 to avoid that.
Also, if you're a foreign person without an SSN, you can't use the online application and have to fax or mail Form SS-4. That's where some of these services actually provide value, because the process is slower and more error-prone.
That's a fair point. For foreign owners, paying for assistance might make sense. For a US citizen with an SSN, it's a waste.
I wonder if the formation companies get a kickback from the EIN service providers. Probably.
Some of them are just reselling a service from a third party. The markup is huge.
the main takeaway is to always read the itemized fees before paying. They count on the checkout process being rushed.
Lesson learned. Next time I'll just go straight to the IRS.