What is an Employer Identification Number (EIN) and Why Do Businesses Need One?

An employer identification number (EIN), also known as a federal tax identification number, is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to identify a business entity operating in the United States. The EIN is used for tax administration purposes and is commonly used by employers for reporting taxes. But what exactly is an EIN, who needs one, and how do you get it? This comprehensive guide will explain everything you need to know about employer identification numbers.

What is an EIN?

As mentioned above, an EIN is a nine-digit number given by the IRS to identify a business for tax reporting purposes. It is formatted as XX-XXXXXXX.

Here are some key facts about EINs

• EINs are used to identify business entities, similar to how Social Security Numbers identify individual taxpayers.

• They are also referred to as Federal Tax Identification Numbers.

• EINs are unique to each business – no two entities can have the same EIN

• Once assigned, an EIN is permanently associated with a business. The number does not change even if the business goes through restructuring, change of ownership, or closes down.

• EINs include information about which state the business is registered in.

• The IRS uses EINs to identify taxpayers who need to file business tax returns.

So in short, the EIN serves as a business entity’s identity for tax purposes with the IRS. Unlike Social Security Numbers which should be kept confidential, EINs can be shared publicly by businesses.

Who Needs an EIN?

While individuals use their Social Security Number for tax purposes, businesses need EINs. The IRS requires certain organizations and entities to obtain an EIN. Some examples of entities that require an EIN include:

• Corporations
• Partnerships
• Limited Liability Companies (LLCs)
• Sole Proprietorships
• Nonprofit organizations
• Estates
• Trusts
• Employment taxes and tax withholding
• Business with employees
• Farmers cooperatives
• Plan administrators

Essentially, any legal business entity that files taxes, hires employees, or generates revenue in the United States needs its own EIN. Some common reasons a business may need an EIN:

• Hiring and paying employees
• Opening a bank account
• Filing business tax returns
• Operating as a corporation or partnership
• Withholding taxes on payments to non-resident aliens

Self-employed individuals using their Social Security Number for taxes can also get an EIN for extra protection and to keep personal and business finances separate.

How to Get an EIN

There are a few ways a business can apply for and receive an EIN completely free of charge.

Apply Online

The quickest and easiest way is to apply for an EIN online through the IRS website. The online EIN Assistant will ask you some questions about your business to determine eligibility, and provide the EIN immediately upon completing the application.

Apply by Fax or Mail

You can also apply via fax or mail by submitting Form SS-4 to the IRS. When applying this way, it can take around 4-5 weeks to receive your EIN.

Apply by Phone

The third option is to call the IRS Business & Specialty Tax Line at 800-829-4933 to apply by phone. This is best for businesses with addresses outside the United States.

No matter which method you choose, the IRS does not charge a fee for obtaining an EIN. Key information needed includes the business name, address, and Tax ID Number of the “responsible party” (owner, officer, trustee, etc).

The IRS limits EIN assignments to one per responsible party per day as a fraud prevention measure.

Benefits of Getting an EIN

Aside from being required for legal business operations, here are some key benefits for your business having its own EIN:

• Separate business and personal finances – Keeps your personal identity and finances protected if your business is sued or files bankruptcy.

• Business bank accounts – You typically need an EIN to open business bank accounts and apply for business loans and lines of credit.

• Tax filing – Enables your business to file and pay taxes properly as a separate entity.

• Hiring employees – An EIN is required if your business hires employees in order to report payroll taxes.

• Tax benefits – An EIN allows your business to take advantage of tax deductions and benefits.

What if You Lose or Misplace Your EIN?

Since your business’s EIN does not change, you just need to recover the original number assigned. There are a few ways to find a lost EIN:

• Check paperwork from when you originally applied.
• Contact the IRS Business & Specialty Tax Line at 800-829-4933.
• Check with your bank, insurance company, or other institutions that may have your EIN on file.
• Look on previously filed tax returns.
• Search state records and business documents.

If you still absolutely cannot locate your EIN, you can apply for a replacement by contacting the IRS.

Do I Need to Update or Change My EIN?

In most cases, your EIN remains the same over the life of your business. However, if the business ownership or structure changes substantially, you may need to apply for a new EIN.

Examples of situations where a new EIN is required:

• Changing from sole proprietor to LLC or corporation
• Partnership where over 50% of ownership has changed
• Business mergers and acquisitions

Check with the IRS if you are unsure if your changed business needs a new EIN. Otherwise, your EIN should stay the same.

The Bottom Line

An Employer Identification Number is a unique identifier assigned by the IRS to any business or entity for tax administration purposes. Nearly all businesses operating in the US need an EIN to legally hire employees, open bank accounts, file taxes and conduct normal business.

Obtaining an EIN is free and easy through the IRS website. It enables your business to operate smoothly while maintaining separation between your business and personal finances. Overall, every business owner should take the time to obtain this critical identifier.