Most small businesses must have an employer identification number (EIN) before they can open a business bank account, set up payroll, or file business tax returns. The EIN is a taxpayer identification number that the Internal Revenue Service (IRS) issues to businesses. Applying for an EIN is one of your first tasks once you've created your small business.
What is an EIN?
An EIN, or employer identification number, is a unique nine-digit number assigned to your business by the Internal Revenue Service. You'll use your EIN for federal tax reporting, and you may also need it for banking, state tax accounts, contracts, and business licenses.
An EIN is also known as a federal employer identification number (FEIN) or federal tax identification number. In many ways, it's similar to a personal Social Security Number (SSN). Each is a nine-digit federal tax identification number. However, SSNs are only for individuals, and EINs are only for businesses. An SSN's format is xxx-xx-xxxx, while an EIN's format is xx-xxxxxxx.
An EIN is not the same as an LLC.An LLC is a type of business entity. An EIN is not an entity. It's a taxpayer identification number that businesses obtain from the IRS.
Employer identification number: Who needs one?
The IRS requires most businesses to have a federal tax ID number. All business entities that have employees must have one. Businesses that file taxes as a corporation or partnership also need to get an EIN, even if they don't have any employees. This includes corporations, partnerships, limited liability companies that elect S corp or C corp taxation, and multiple-member LLCs taxed as partnerships.
Certain other businesses and business entities also need an EIN number:
- Businesses that file employment, excise, or alcohol, tobacco, and firearms tax returns
- Businesses that withhold taxes on non-wage income paid to non-resident aliens
- Businesses that have a Keogh plan
- Businesses that are involved with any of the following:
- Non profit organizations
- Estates
- Trusts, except for certain grantor-owned revocable trusts, IRAs, and Exempt Organization Business Income Tax Returns
- Real estate mortgage investment conduits
- Farmers' cooperatives
- Plan administrators
The Internal Revenue Service does not require an employer identification number for sole proprietorships if they don't have any employees and don't fall within any of the other categories listed above. For EIN purposes, "sole proprietorships" include self-employed individuals and single-member LLCs that file taxes as a sole proprietorship. These solo business owners can use their personal Social Security number for business tax purposes, but they may need an EIN for other reasons, such as opening a business bank account.
How to get an employer identification number (EIN)
You can get an EIN at no cost from the IRS. If your business is based in the U.S., you can apply for an EIN online at the IRS website and receive it immediately. Foreign businesses that don't qualify to apply online can apply by phone. You can also apply for an EIN by fax or mail using Form SS-4.
The EIN application process is fairly easy, but if you're applying online, you must complete the online application process in one session. So it's best to collect the information you'll need before you begin:
- The legal name of your business. If you're forming a new corporation or LLC, you should usually complete business formation with the state before you apply for a new EIN.
- Your business's trade name or DBA (doing business as), if any.
- Your business's mailing address. If your physical street address is different from your mailing address (such as if you have a P.O. box), you'll also list your street address.
- The county and state where your principal place of business is located.
- The name and personal taxpayer identification number (SSN, ITIN, or EIN) of the responsible party. The responsible party is a person who owns or controls the business and is the person responsible for managing the business, its financial matters, and its assets. Unless the entity is a government entity, the responsible party must be an individual. To ensure fair and equitable treatment for all taxpayers, the IRS will only issue one EIN per responsible party per day.
- If your business is a limited liability company, the number of LLC owners or "members."
- Your business structure for tax purposes. LLCs do not have their own tax classification and will automatically be taxed as either a sole proprietorship/disregarded entity (if there's only one member) or a partnership (if there are multiple members). LLCs can also file forms with the IRS electing to be taxed as an S corp or C corp.
- For corporations, the state or country where the business was incorporated.
- The reason for applying for an EIN, such as starting a new business, hiring employees, or needing an EIN for banking purposes.
- The date your business was started or acquired.
- The number of employees you expect to have and when you begin paying wages.
- The type of business you're in.
- The names of people who should receive IRS business communications (if applicable):
- If your business has a designated person to receive tax information, you can enter that person's name for correspondence to be sent in care of that person.
- You can also complete the third-party designee section to designate someone to receive the EIN on your company's behalf and answer questions about the application form.
When you apply online, the IRS will validate your information, and your EIN will be issued immediately. You'll receive an EIN confirmation notice informing you of your new EIN number. You can use your EIN immediately.
Tax-exempt status and your EIN
If you're starting a nonprofit, the IRS recommends you legally form your nonprofit business organization with your state before you apply for an employer identification number (EIN). Once you receive an EIN, you're subject to IRS rules about annual tax filings.
When you apply for an EIN, you'll indicate whether your organization is a church-related organization or another type of nonprofit. The “responsible party" will generally be the company's principal officer.
Forming a non profit organization and receiving an EIN does not entitle you to tax-exempt status. You'll need to meet additional requirements before you can receive a tax exemption.
Once you have an EIN, you can use it to open a business account at your bank. You may also need an EIN to apply for business licenses or a sales tax permit. You'll need it to set up payroll, file tax election forms, apply for a business loan, and pay business taxes to government agencies.
Getting an employer identification number (EIN)—even if you're not required to
You can apply for an EIN for your business even if it's not required. Some sole proprietors get an EIN to protect the privacy of their personal Social Security Number and identifying information. Other small business owners apply for an EIN because their bank requires it. If you get an EIN when you start your business, you'll be prepared for the day when you have employees or partners. And an EIN can make a sole proprietorship appear more professional and credible.
When you need a new EIN from the Internal Revenue Service
If your business changes its ownership or structure, you may need to submit a new EIN application. For example, if you're a sole proprietor and add a business partner to become a partnership, you'll need to apply for a new EIN. You'll also need a new EIN if a partnership decides to incorporate or if a corporation becomes a sole proprietorship or partnership.
You don't need a new EIN if you're simply changing a business's name or location or if you're electing to be taxed as an S corp. If your business is undergoing change and you're not sure whether a new EIN application is necessary, contact the IRS or consult a small business accountant.
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