What Is an EIN?
If you’re in the early stages of forming your business, you may have come across the term “EIN” and wondered what it refers to and how it applies to your business.
An EIN, or Employer Identification Number, is the unique 9-digit number assigned to your business by the Internal Revenue Service. This number may also be referred to as a Federal Employer Identification Number (FEIN).
Your EIN acts in a similar manner to that of a Social Security Number for an individual. The number is unique from all other businesses and used by the IRS for tax reporting purposes.
Also, it’s important to note that your EIN is a publically available record. Employer Identification Numbers of publically held companies are searchable online through the Securities and Exchange Commission’s EDGAR database.
What Is the Purpose of an EIN?
As noted above, the IRS assigns each business a unique Employer Identification Number for tax identification and administration purposes. For this reason, all organizations are required to have an Employer Identification Number (regardless of whether your business has employees or not).
Note that while this is the sole purpose of your EIN, it may also be requested as a means of verification. For example, if you wanted to open a bank account for your business, you would need to provide the bank with your EIN.
Additionally, keep in mind that your EIN differs from that of your tax-exempt number. While your tax-exempt number is also used for identification purposes, it is assigned by your state and refers to exemption from state sales and use taxes. If you have questions regarding your tax-exempt number, you’ll want to consult with your state revenue department.
Does My Business Need an EIN?
An important question to ask in your formation process is whether or not your business requires an EIN. In certain cases, you may find that it isn’t necessary that you obtain an Employer Identification Number for your business.
The IRS has specific criteria for determining whether your business must apply for an EIN. You’ll need to obtain an EIN if one of the following criteria applies to your business:
- You have employees.
- You are a partnership or corporation.
- You file excise tax.
- You withhold taxes for nonwage income paid to nonresident individuals.
Can an Individual Obtain an EIN?
Even if your business doesn’t have any employees, you can still obtain an Employer Identification Number. In fact, depending on your business goals, you may find that you need to have one.
For example, if your business is a sole proprietorship and doesn’t meet any of the criteria listed above, the IRS does not require that you obtain an EIN. However, note that if you want to separate your business and personal finances, an EIN will allow you to open a bank account for your business.
Additionally, if your business is a single-member LLC that doesn’t meet any of the above criteria, the IRS does not require that you obtain an EIN in this scenario either. Again, however, if you’re interested in hiring employees at some point, opening a business bank account, and limiting your personal liability, you will need to obtain an EIN.
When Should a Business Apply for an EIN?
There’s an important distinction to be aware of if you’re wondering at what point in the business formation process you should apply for an EIN. Be certain not to apply for your EIN until after you have legally formed your business.
The reason for this is that once you apply for your EIN, the IRS presumes that you have legally registered your business. At this point, any relevant filings or notifications that apply to your business will start their timeframes.
How to Apply for an Employer Identification Number (EIN)
If the principal location of your business is within the U.S. (or U.S. Territories) you have the option of applying for your EIN online using the IRS EIN Assistant. The EIN Assistant will guide you through the application process on the IRS.gov website.
Note, however, that when you go to fill out your application online, it must be completed in one session (i.e. you cannot save and return later). Also, be aware that your application session will expire after a 15-minute period of inactivity, requiring that you start over from the beginning.
With this in mind, you’ll want to have all the information required by the application ready and available as you start your EIN application.
All EIN applications will require the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the principal officer, general partner, owner, trustor or grantor. The IRS classifies this individual as the responsible party. The responsible party manages the entity and all of its funds and assets.
Note: The responsible party must be an individual (not an entity) in all cases except when the applicant is a government entity.
Also, remember that you must have already legally formed your business prior to applying for an EIN, as the application will ask for the business formation date and legal business name.
Once your application is submitted and validated, you will receive your EIN immediately upon completion. Be sure to save your EIN confirmation notice.
In addition to applying online, you have the option of applying for your EIN by mail or fax. To do so, you will need to complete IRS form SS-4 (Application for Employer Identification Number).
- By Fax: Submit your form to fax number (855) 641-6935.
- By Mail: Submit your form to Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999.
Note: If you’re an international applicant you also have the option of applying for an EIN number. While you cannot apply online at the IRS website, you can still apply by completing IRS Form SS-4 and calling the IRS at (267) 941-1099 or submitting by fax at (304) 707-9471.