How to Get an EIN
A lot of businesses need an EIN, or employer identification number, to function. An EIN is like a social security number, but for a business. It’s a unique, nine-digit number issued by the IRS that makes each business easy to identify. If you’re a new business owner, you probably have questions about an employer id number. This guide provides all the information you need, from filing an EIN application to using it to file your income tax.
What is an EIN?
An EIN, or employer identification number, is a unique identifier assigned to a business entity. The purpose of this number is primarily so that the Internal Revenue Service (IRS) can easily identify the business and its corresponding records without any confusion among similarly-named organizations.
An EIN is primarily used for tax purposes, but a business may use its EIN for other official matters, like applying for bank accounts or credit cards. On these applications, you may see EINs referred to as Federal Tax Identification Numbers. The two terms mean the same thing.
Like a Social Security Number, an EIN is made up of 9 digits. They are formatted as XX-XXXXXXX and are entirely unique to each organization.
While not every type of business needs an EIN, some businesses meet criteria that mean they are required.
What’s the purpose of an EIN?
- The main purpose of an employer identification number is to provide a unique identifier to each business in the United States as a federal tax ID.
- By using an EIN to perform searches and look up records, the IRS and other government agencies can be sure they are looking for the right entity.
- Businesses are usually required to have a unique name within their home state, but not across state lines. That means that 50 different businesses called “Bob’s Grill” could exist at the same time, which could make federal taxes confusing.
- An EIN is used to help locate the exact record for each business and keep them properly delineated. An EIN is listed on tax forms and may be used to obtain documents like a business license.
Which businesses need an EIN?
EINs are only applicable to businesses located in the United States or its territories. In general, any business that has an employee needs an EIN. However, there are a variety of other circumstances that may necessitate an EIN. Each business structure has different requirements and scenarios.
Because a corporation is a legally separate entity from its owners, it will always need an EIN. This EIN will be solely tied to the federal taxes done on behalf of the company. A corporation may also be required to get a new EIN when certain changes are made, like an acquisition or a change to the business structure.
Most partnerships will need an EIN, but there is an exception when it is a joint undertaking for the sole purpose of sharing expenses. If one partner were to leave or the business was to become incorporated, a new EIN would be issued.
The owner of a single-owner LLC may not need to obtain an EIN if there are no employees. Taxes would pass through to the owner, who would file individual income tax returns. However, if there are two or more members, an EIN would be necessary whether it is treated as a partnership or a corporation for structural purposes.
A sole prop is the business entity least likely to need an EIN, as it is considered legally the same entity as the owner. All taxes are filed on the owner’s personal return, so their own SSN or Tax ID would suffice for the purposes of the IRS. However, if the sole proprietorship has any employees, an EIN would become necessary.
Other entities that may require an EIN include trustees or other fiduciaries of certain types of trusts, the estate of a deceased person, an employee benefit plan, and tax-exempt non-profit organizations.
Regardless of structure, any business that does the following will need an EIN:
- Has any employees
- Files employment, excise, alcohol, tobacco, or firearms tax returns
- Withholds taxes on income paid to non-resident aliens
What are the benefits of getting an EIN?
Even if your business is not required to obtain an EIN, it can be a useful tool for separating your business and personal finances. The legitimacy of the EIN can also help with outside processes and save you time and money.
Avoid tax penalties
If a responsible party is supposed to have an EIN and does not obtain it by tax day, there is a specific process for notifying the IRS, or you may face penalties. But even if you aren’t required, you may want an EIN for tax protection anyway. Deductions that typically flag audits, like home offices, are less likely to be investigated if you have an EIN, for example.
Because an EIN separates your personal and business finances, using an EIN protects your personal finances. You will not need to disclose your Social Security Number to clients or vendors since they can use your EIN. While a thief could use your EIN, it is less common and gets them less access than a personal identifier would.
For new small businesses, freelancers, or independent contractors, it may be important to ensure clients that you are a legitimate operation and make them feel secure. Having an EIN shows you have gone through the proper protocol with the IRS and are filing taxes, signifying that you have a serious business and can be trusted.
An EIN can also demonstrate that you are an independent contractor, which may be important to a company hiring you as you are not an employee. Companies often save money and avoid legal responsibilities by using a contractor, so evidence of your status as a standalone worker can help you gain more clients.
A variety of tasks related to funding your business are simpler with an EIN. For example, while some banks allow sole proprietors to open a business bank account on their own, most require an EIN in order to establish a business account.
An EIN Is also very important when building business credit. This works similarly to personal credit, allowing an evaluation of the business’s history of payment and responsibility. A business has a credit report, just like a consumer credit report, with relevant information. These reports are pulled based on EIN, so having one makes this process easier and ensures your business and personal finances are separated.
For business loan applications, an EIN is often not required as long as you can show the proper license and permits. However, most of these lenders will require you have a business bank account with evidence of deposits. These accounts may require an EIN. Additionally, some lenders check business credit, which can be tied to an EIN, to show eligibility.
Having an EIN is one of the baseline requirements for a business to take on employees, allowing them to grow. Having one in place means you can take this step at any time without worrying about needing to complete the application. Once you have the EIN set up, you can begin using payroll software and hiring employees.
EINs are also helpful for those looking to expand their business geographically. A foreign national without a Social Security Number can apply for an EIN through the IRS, which may give them access to business credit and bank accounts in the United States without having to become a citizen. On the other hand, an EIN can help protect these assets and others from any major losses or bankruptcies. This delineation makes it easy to work for yourself and maintain normal personal financial planning.
Even if your business has no other employees, an EIN can allow you to receive some of the benefits of employment. With an EIN, business owners can open Keogh and Solo 401(k) retirement plans, which are usually more beneficial than personal IRAs when it comes to taxes.
How much does it cost to get an EIN?
It is free to obtain an EIN, issued by the IRS. If you ever see a charge to get your EIN, the website is likely not legitimate, and you should be sure you are on a .gov web address.
How do you obtain an EIN?
Prepare your information
As part of obtaining an EIN, you will need to provide information about your business. It is best to have this all on hand before filling out the online EIN application.
Information needed for the application includes:
- The legal name of the business entity and any trade names it goes by
- The person authorized to act for that entity – this could be a corporate officer, a partner, an executor, or a trustee
- Mailing addresses for both the legal entity and the person requesting the EIN
- The authorized person’s Social Security Number or equivalent tax ID number
- Type of entity
- Number of LLC members (for LLCs)
- State or foreign country where the company is incorporated (for corporations)
- Reason for applying for an EIN. Even if you have multiple, you must choose one. Common options include starting a new business or hiring new employees.
- Closing month of your accounting year. While this is usually December, it can vary.
- The estimated highest number of employees expected to have in the next 12 months – this can be 0
- The first day you paid wages to employees, if applicable
- Principal business activity you are engaged in
- Applicant’s name, title, telephone number, and signature
- Third-party nominee’s contact information if one has been authorized to act on your behalf
Fill out application
Anyone who needs an EIN must submit a completed Form SS-4: Application for Employer Identification Number. This form is available on IRS.gov, though you can also ask for it by mail if you prefer. Before you submit the application, you must provide information such as the name of the company, principal officer or owner’s name, and personal taxpayer ID.
The information can be validated immediately online, and an EIN will be assigned then.
If you chose to mail in your application, it will take several business days to receive the number.
While you will receive formal paperwork later, you can use your EIN within moments of it being approved online.
For those in other countries
Those who are not currently located in U.S. territories, but need to obtain an EIN for a business there, will need to call the IRS to request a paper version of the application.
Keeping your EIN up to date
An EIN never expires and will be tied to your company in the IRS records forever, even if your business were to close. You will need to keep all information up to date so that the EIN is being accurately applied and you are in compliance with all regulations.
If something like your business name or address has changed, it is required that the IRS is notified in writing with a signature from an authorized person from the legal entity. Changes to your business structure or other large changes like an acquisition may require a new EIN. An exception is if you are planning to switch a corporation to an S corporation, which requires a form but not a new EIN.
Closing an EIN
Once your business is assigned an EIN, the number is forever associated with that company. Technically, an EIN can never be canceled or re-used by the IRS, and the record will remain in perpetuity. This is because the EIN is a critical element of all financial reporting, so even if a return is never filed, it is kept on record for future use.
If you do receive an identification number and later decide it isn’t needed, you can ask the IRS to close your associated business account. This happens often with startup companies that never launch, for example. To do this, a physical letter must be mailed to the IRS indicating the legal name, business address, EIN, and the reason for the account closure. This will suspend the IRS business account, but the EIN will remain.
How do I qualify for EIN?
Any business in the United States is eligible to apply for an EIN. While some structures, like sole proprietorships, do not require it, they can be issued one upon request from the IRS. There are no criteria to meet besides being an existing business and being able to provide the information requested on the IRS application.
What is the fastest way to get an EIN number?
The fastest way to get an EIN number, also known as a federal employer identification number, is by going to the IRS website and filling out the online application. The request can be immediately validated, and you will receive your EIN during the process to be used.
You can also call a toll-free number to get an EIN or request one by using the IRS fax number.
Is EIN and tax ID the same?
A tax identification number is a broad term that describes any identifier, including EIN. Other examples include Social Security Numbers or Individual Taxpayer Identification Numbers. A U.S. citizen who was not born here can also be issued a tax ID that is separate from an EIN, which is only used for businesses.
What happens if a business fails to get an EIN?
If a business is required to have an EIN and does not, it will become an issue during tax filing. There is a process to follow to alert the IRS to this, and it can result in late filing fees, tax penalties, or trouble coordinating and filing your taxes.
Does your EIN ever change?
Businesses may be required to get a new EIN if their ownership or structure has changed. This can include mergers, acquisitions, changes in ownership, incorporation, and other large changes. A business that is subject to a bankruptcy proceeding will also need a new EIN. A new name or location does not require any changes to the EIN.
What happens if I lose my EIN?
If you misplace your EIN, you should be able to find it on a notice sent to you from the IRS during issuance. Other documents like past tax filings may also include it. However, if you cannot find it, you can contact the IRS Business and Speciality Tax Line and provide identifying information to the operator.
How can I find my EIN?
Your EIN should be present on documents like tax returns, past applications for bank accounts or credit, any state licenses or permits, or other forms used to report work and payments. You should also have a notice from the IRS regarding your EIN being issued.
Can I tell other people my EIN?
EINs are sensitive information, but not to the same extent as something like a Social Security Number. It is common to share an EIN with various clients, vendors, financial institutions, and employees who will need it for various purposes. However, you do not need to advertise it publicly and should keep all documents that include your EIN in a secure location.