An Employer Identification Number (EIN) is a valuable—and often required—tool when launching a new business or side hustle.
An employer identification number (EIN) is a business’s Social Security number. Most businesses require it to complete essential actions such as paying taxes or opening a bank account.
Not all business owners require an EIN, but it is required if you have workers, operate as a partnership, or meet any of the more nuanced criteria listed below. Knowing who needs to apply for an EIN and the benefits it provides can help your business distinguish itself from competitors.
what exactly is an EIN?
The Internal Revenue Service (IRS) issues your business a nine-digit number known as an EIN in order to identify it for tax purposes. State tax forms use EINs that the state issues. Businesses can also use EINs to hire staff.
Other common ID numbers are:
- The Tax Identification Number (TIN).
- The Federal Identification Number (FEIN)
- The 95 number
- The Employer Identification Number (EIN)
- The Business Tax ID
- The Federal Business Tax ID
- The Business Taxpayer ID number
- The Business Tax ID number
what are the primary differences between an EIN and other identification numbers?
An EIN is the basic tax identification number for firms in the United States with employees and more than one owner who match the additional qualifications specified above.
Suppose your company does not fulfill all of the requirements. In that case, you can use an alternative, such as a Social Security number (SSN) or an Individual Taxpayer Identification Number (ITIN), for people who do not have an SSN.
Note
Social Security numbers and tax identification numbers are formatted as xxx-xx-xxxx. EINs, on the other hand, follow the following format: xx-xxxxxxx.
is an EIN the same as a tax identification number?
A tax ID is a general term the IRS uses to identify firms for tax purposes. There are four types of tax IDs.
- Social Security Number (SSN)
- Taxpayer Identification Number (TIN)
- Employer Identification Number (EIN)
- Individual Taxpayer Identification Number (ITIN)
Sole proprietorships are the only firms that can utilise an SSN for tax purposes because they do not employ anyone. Meanwhile, companies managed by entrepreneurs who do not have a Social Security number or have their headquarters in another country will rely on an ITIN to identify their organization when tax season arrives.
To identify themselves, all other firms will use a TIN/EIN. These tax ID numbers are assigned to entities rather than individuals. Like all other tax IDs, the IRS utilizes it to identify firms for tax purposes, but it is solely for businesses.
EIN vs. TIN
A taxpayer identification number (TIN) is an identity number the government assigns to enterprises with employees. It is a general tax ID number that functions similarly to an EIN. The only distinction is that an EIN is an employer identification number.
Sole proprietorships, corporations, nonprofits, government agencies, and other entities use TINs and EINs.
FEIN vs. EIN
An employee identification number (FEIN) is one that the federal government issues. It serves the same purpose as an EIN, but the federal government issues it rather than the state. A FEIN also enables you to enroll in the Electronic Federal Tax Payment System (EFTPS), which allows you to make tax payments by phone or online.
who requires an EIN?
Any company that employs people or has a qualifying business structure is required by law to get an EIN. According to the IRS, the following types of businesses require EINs:
- Corporations
- Partnerships
- Limited liability companies
- Nonprofits
when do trusts and estates need to obtain an EIN?
If your trust or estate earns money, you may need to get an employment identification number for tax purposes. You also need an EIN if you have a trust that can’t be changed and doesn’t have a grantor trust classification.
what is the purpose of an EIN?
An employer ID number can be used to validate your company’s identity and tax accounts. EINs are incredibly beneficial since they allow you to:
- Buy corporate cellphones
- Open a bank account
- Apply for a business permit
- Hire staff
- Withhold and pay taxes
- Apply for business financing
- Open credit cards
what circumstances necessitate the use of an EIN?
Contractors and sole proprietorships aren’t usually required to have one. However, you need an EIN if you:
- Started a business
- Intend to hire employees
- Will open a company bank account
- Changed the structure of your business
- Made a trust with money from the estate
- Plan to keep an expatriate’s non-wage income
- Started a pension plan
- You need one to meet IRS rules about withholding requirements.
- Set up a company or a partnership
- Represent a dead person’s estate, which may include a business.
- Take care of a person’s estate in probate court after they die.
- Are a state or local government body
- Pay federal excise taxes
- Offer a pension, profit-sharing options, or retirement plan
- Have a business that becomes a multiple-member LLC, no matter how you choose to tax it
- Own a single-member LLC that chooses to be treated as either a C corporation or an S corporation.
- You are a representative of an estate that runs a business after the owner has died.
why obtain an EIN if you do not need one?
Freelancers, Independent contractors, entrepreneurs running small businesses out of their homes, and people with side occupations who take advantage of the gig economy are generally exempt from obtaining an EIN.
Even if the IRS does not require an EIN, you should obtain one if you:
- Desire to open a bank account just for business income and costs.
- Use a company card to purchase products for your firm.
- You need a business loan to start or expand your firm.
- You do not wish to use your own Social Security number.
Just keep in mind that an EIN is only for businesses and cannot be used to substitute your SSN for personal tax purposes.
EINs’ purpose and benefits
There are no consequences if you obtain an EIN, but you should never use it unless you include the time you spent applying for it.
There are various advantages to obtaining an EIN, which is why many firms obtain one even if they are not legally required to. You may use an EIN to identify your firm, and taking the time to apply for one benefits you in the following ways:
- Prevent identity theft
- Facilitate tax filing
- Hire personnel
- Reduce personal liability
- Open bank accounts and obtain company credit cards
- Be eligible for business loans
Employer Identification Number (EIN) Applications
It is now time to put your EIN to good use! It can be used to:
- Open a business bank account
- Apply for business credit cards
- Obtain business permits
- File tax returns
- Hire your first staff
- Qualify for business financing.
what other benefits does having an EIN provide?
An EIN is one of the most important business tools. The number simplifies the following:
- Obtain a Business License. State laws vary, but many require business owners to obtain an EIN before obtaining a business license and opening their doors.
- Open a Company Bank Account. To open a business bank account, many banks require an EIN and the required business license to demonstrate that you can operate in your area. Depending on how your business is set up, you may need to show articles of incorporation or a “doing business as” (DBA) certificate.
- Get a Bank Loan. Before you can apply for a loan, most banks want you to have a business account.
- Employ People. An EIN is required if you have or plan to hire employees. You can’t set up your payroll system unless you have one.
- Submit Your Tax Returns. If you are required to have an EIN and do not have one before filing your taxes, you risk incurring various tax penalties.
- Increase Credibility. An EIN helps you establish yourself as a competent business owner.
FAQs about employer identification numbers (EINs).
If you’re still confused about how to begin the EIN application or whether you need one, Please continue reading as we answer some commonly asked questions.
Is a Social Security Number or an EIN Preferable?
There is no way around it if the IRS determines you require an EIN. However, even if an EIN is unnecessary, it is still a good idea to use one for your business for one important reason: to avoid personal danger. Using your Social Security number for business reasons raises your risk of:
- Identity theft
- Tax Penalties
- Liability issues
An EIN assists you in keeping your personal and corporate finances distinct. It stops identity fraudsters from stealing your personal assets by reserving your Social Security number for personal requirements. The IRS suggests that you only use your Social Security number if you have a minimal business structure and no workers.
If you intend to create a Keogh plan, you should also use an EIN rather than your SSN.
Note
If you want to use your SSN for company identification or tax purposes, immediately set up a fraud alert.
What Information is Required to Obtain an EIN?
To receive an EIN, you must first prove to the government your identity and that you operate a genuine firm. You will need to provide the following information:
- Name of the business owner or individual who is responsible for the company
- Provide the identification number of the person in charge, such as their SSN, ITIN, or EIN.
- Legal name of the business
- Business structure (corporation, LLC, sole proprietorship, partnership)
- Mailing address of the business
- Reason for requesting an EIN
- Date the business was created or acquired
- Number of employees you plan to employ
- Date you will begin paying wages
If you want someone else to get your EIN confirmation letter and number, such as a lawyer or accountant, you must include their contact information.
How to Terminate an Employee Identification Number
Although the IRS cannot revoke your EIN, they can close your account. Because each EIN is unique, it cannot be reused, but it will be available if you choose to use it again.
To terminate your EIN account, send your request to the IRS at one of the addresses listed below:
Internal Revenue Service
MS 6055 Kansas City, MO 64108
Or Internal Revenue Service MS 6273 Ogden, UT 84201
In your letter, explain why you’re canceling the account and provide the full legal name of your company, the EIN, and your address.
What Should I Do if My EIN is Misplaced?
Examining past bank accounts and tax returns to see if your EIN is listed is one of the simplest ways to find it. If you can’t find it, contact the IRS.
You can seek its EIN on the SEC’s website if your business is publicly traded. Search for the company’s name and review the most recent 10-Q or 10-K form. If that doesn’t work, try looking for it on:
- The computer-generated receipt the IRS issued you after you applied for an EIN
- Bank statements for accounts you opened with an EIN
- Old tax returns
Can I have More Than one EIN?
You can have as many EINs as business entities, but each business can only have one.
If you make significant changes to your firm, such as changing its structure, you may need to file for a new EIN.
Prepare your Company for Success.
Still unsure if you require an EIN? You can take the IRS test to get a specific response based on your answers. Then, when you’re ready, register your company and plan for the future by obtaining an EIN.
Forming your LLC first is always a good idea because you’ll need to declare the company’s legal name and the date it was founded on the EIN application. You can create an official bank account or hire personnel once you have your EIN.
