What Is an Employer Identification Number (EIN)?

An Employer Identification Number (EIN) is a unique nine-digit identifier assigned to businesses by the Internal Revenue Service (IRS) in the U.S. for tax administration purposes.

This number serves as a federal tax ID for businesses, similar to how a Social Security number functions for individuals in the U.S. The EIN is used primarily for reporting taxes and other documents to the IRS, but its applications extend beyond tax matters.

While the EIN is specific to the U.S., many countries have similar systems in place for business identification. In the U.S., the EIN is crucial for various business operations, such as opening bank accounts, applying for business licenses, and handling employee payroll.

The IRS issues EINs to a wide range of business entities, including corporations, partnerships, and sole proprietorships. Even non-profit organizations and estates may require an EIN, highlighting its importance across different types of business structures.

Who needs an EIN? And why?

Various business entities require an Employer Identification Number for different reasons. The necessity of an EIN depends on the business structure, activities, and specific circumstances. Below are common business entities and professionals who may need one.

Corporations. All corporations, including C and S Corporations, always need an EIN, regardless of their size or number of employees.
Partnerships. General partnerships, limited partnerships, and limited liability partnerships require an EIN.
Limited Liability Companies (LLCs). Multi-member LLCs always need an EIN. Single-member LLCs require an EIN if they have employees or elect to be taxed as a corporation.
Sole proprietorships. Generally, they don't need an EIN unless they have employees, file certain tax returns (e.g., excise, employment), or have a Keogh plan.
Non-profit organizations. All non-profit entities require an EIN for tax-exempt status and reporting purposes.
Estates and trusts. Estates of deceased individuals and most trusts (except certain grantor-owned revocable trusts) need an EIN.
Other entities. Farmers' cooperatives, real estate mortgage investment conduits, tribal governments and enterprises, and plan administrators also require an EIN.

Even when not strictly required, many sole proprietors and single-member LLCs opt to obtain an EIN for these benefits and to enhance their professional credibility.

While employment-related matters are a primary purpose of an EIN, this unique identifier is used for several business operations:

Opening business bank accounts. Most financial institutions require an EIN to open a business account.
Hiring employees. An EIN is necessary for payroll tax reporting and withholding.
Filing tax returns. Both federal and state tax returns often require an EIN.
Business licensing and permits. Many local and state authorities require an EIN to issue business licenses.
Applying for business loans. Lenders typically ask for an EIN as part of the loan application process.

Additionally, an EIN can help protect a business owner's identity by reducing the need to use their Social Security number for business purposes.

EIN vs. SSN vs. ITIN

Employer Identification Numbers (EIN), Social Security Numbers (SSN), and Individual Taxpayer Identification Numbers (ITIN) all play a crucial role for businesses and individuals operating in the U.S., but each carries unique differences.

EIN is a nine-digit number issued by the IRS to identify business entities for tax purposes. It's often referred to as a "business Social Security number" and is used for various business-related activities, including filing tax returns, opening bank accounts, and hiring employees.
SSN is a nine-digit number issued to U.S. citizens and authorized residents by the Social Security Administration. It's primarily used to track an individual's earnings and years of employment for determining Social Security benefits. SSNs are also used for personal tax filing and identification purposes.
ITIN is a tax processing number issued by the IRS to individuals who must have a U.S. taxpayer identification number but are not eligible for an SSN. This includes foreign nationals and nonresident aliens who must file U.S. tax returns.

Key differences between these three numbers:

Purpose. EINs are for businesses, SSNs for U.S. citizens and authorized residents, and ITINs for foreign individuals needing to file U.S. taxes.
Eligibility. Any business can apply for an EIN, SSNs are limited to U.S. citizens and authorized residents, and ITINs are for those ineligible for SSNs but required to file U.S. taxes.
Usage. EINs are used for business tax and identification purposes, SSNs for personal taxes and Social Security benefits, and ITINs solely for tax processing.
Issuance. EINs are issued by the IRS, SSNs are issued by the Social Security Administration, and ITINs are issued by the IRS.

In the U.S., understanding these distinctions is essential for proper tax compliance and business operations.

How to apply for an EIN

Applying for an Employer Identification Number is a straightforward process that can be completed through various methods. Here's an overview of how to apply for an EIN:

Application methods

Online application. The fastest method that is available for U.S.-based businesses. EINs are issued immediately upon completion of the application. This service is available Monday to Friday, 7 a.m. to 10 p.m. Eastern Time. The entire process must be completed in one sitting, as you cannot save and return later.
Fax application. Complete Form SS-4 and fax it to the IRS. This method typically results in EIN issuance within four business days. It's a good option for those who prefer not to apply online or need to provide additional documentation.
Mail application. Send a completed Form SS-4 to the IRS by mail. This is the slowest method, with processing times of four to six weeks. It's suitable for those not in a rush and prefer traditional correspondence.
Phone application. Available only for international applicants who cannot use the online method. Applicants can call the IRS at +1 267-941-1099 to apply. The processing time varies but is generally faster than mail applications.

The application process timeframes vary depending on the method chosen. Online applications are the fastest option, offering immediate EIN issuance. Faxed applications typically take about four business days to process, while mail applications are the slowest, with processing times of four to six weeks. Applying by phone is only available for international applicants and has varying timeframes but is generally faster than mail.

To streamline the process, ensure all required information is accurate and complete before submitting your application. Applying for an EIN is free through the IRS, so be cautious of third-party services charging fees for EIN application assistance.

Common EIN-related mistakes

Businesses should be aware of several common mistakes related to Employer Identification Numbers (EINs):

Misusing EINs on tax documents. Using the wrong EIN can lead to tax complications and potentially cause delays in processing.
Failure to update EIN when necessary. Businesses must update their EIN if there are significant changes, such as mergers or changes in ownership.
Errors during the EIN application process. Providing incorrect information on the application can lead to delays or rejection of the application.

If you lose or misplace your EIN, don't panic. You can retrieve it by checking previously filed tax returns or looking for it on other official documents, such as business licenses or IRS correspondences. If these methods don't work, you can call the IRS for assistance in retrieving your EIN.

FAQs about EINs

Here are some frequently asked questions about Employer Identification Numbers to help clarify common concerns:

Can an EIN expire?

No, EINs do not expire. Once issued, an EIN remains valid for the life of the business entity unless there are significant changes in ownership or structure. However, if a business closes and later reopens, it may need to apply for a new EIN.

Can multiple businesses use the same EIN?

Generally, no. Each separate legal business entity should have its own unique EIN. However, in some cases, such as with a sole proprietorship operating multiple businesses, a single EIN may be used for all business activities under that sole proprietorship.

How do I know if my business already has an EIN?

You can check your business records, tax returns, or bank account opening documents for an existing EIN. If you are still unsure, contact the IRS Business & Specialty Tax Line at 1-800-829-4933 to verify whether an EIN has been assigned to your business.

Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2024 Velocity Global, LLC. All rights reserved.