Summary: An Employer Identification Number (EIN) is a unique identifier issued by the IRS to track employer compliance with income and payroll tax obligations.
There are over 30 million businesses registered in the US, each with a distinct name and identity. These range from small, one-person businesses to corporations employing over 100,000 people. How does the government, and most importantly, the IRS, keep track of all of these businesses, their earnings, and their tax obligations? The answer is the EIN or employer identification number. This number is something required by almost all organizations in the US, so we’re going to explain what one is, what it’s used for, and how to get one if you’re becoming an employer.
What Is an Employer Identification Number?
An employer identification number or EIN is a unique nine-digit number granted to each entity in the United States.
The Internal Revenue Service (IRS) stresses that every organization needs to obtain an EIN, even if it will not hire employees. This naturally includes businesses but also encompasses charitable and church-controlled organizations as well. This EIN number identifies the entity with the IRS for tax purposes and since all entities need to file tax returns, they all need these unique identifiers.
Each number is unique and never expires. Because the numbers have nine digits, the IRS can potentially issue 999,999,999 EINs. Because there are so many possibilities, EINs are never re-used, even if a company goes out of business or a partnership is dissolved. There should only be one EIN for any single entity
EINs may also be referred to as Federal Employer Identification Numbers (FEINs) or Federal Tax Identification Numbers (FTINs).
Structure of an EIN
EINs are used in lots of transactions, reports, and tax forms, so it’s important to know what they look like. EINs are structured with their first two digits separated from the last seven by a dash, like this: 12-3456789
The first two digits are a code that tells which of the IRS’s ten campuses issued the EIN or if it was issued online or by the IRS’s Small Business Administration (SBA). For example, EINs starting with 60- are issued by the IRS campus in Atlanta Georgia, 82- numbers are issued through the Internet, and 31- numbers are issued by the SBA.
Business identity theft can occur when someone obtains an EIN for an entity without that entity’s authorization or uses another business’s EIN to file taxes. These instances of fraud don’t use fake EINs but instead misuse officially issued numbers.
Who Needs an EIN?
As we’ve already seen, the IRS requires all entities in the US to obtain EINs. The types of businesses and other entities that can apply for and obtain EINs include:
Business Entities:
- Corporations
- Farmers’ cooperatives
- Limited liability companies (LLCs)
- Partnerships
- Personal service corporations
- S corporations
- Sole proprietorships
Other Entities:
- Benefits plan administrators
- Churches and church-controlled organizations
- Estates
- Government agencies and entities
- Indian tribal governments
- Individual bankruptcy estates
- Military entities
- Non-profit organizations
- Trusts
According to the IRS, any entity that has employees, pays employment, excise, or alcohol, tobacco, and firearm taxes, or withholds taxes on non-wage income to a non-resident alien needs an EIN. If you plan to do one of the following, a new EIN is likely required:
- Start a new business
- Hire employees
- Change the type of organization
- Gain ownership of a business
- Create a trust
- Create a pension plan or retirement plan
- Comply with IRS withholding regulations
How to Obtain an Employer Identification Number
While an EIN is critical for the operation of your business, obtaining one is a very simple procedure. Once your entity is legally formed, you can follow one of these three processes to obtain your EIN for it:
Apply for your EIN online
- Prepare the Social Security Number of the responsible party for the entity.
- Visit this IRS page and start the EIN Assistant.
- Use the EIN Assistant to fill out your application, indicating your type of entity and other relevant information within a 15-minute time limit.
- Save and print your EIN confirmation for your records.
Apply for your EIN by fax
- Prepare the Social Security Number of the responsible party for the entity.
- Obtain Form SS-4, Application for Employer Identification Number (EIN), by post or as a download.
- Fill out the form, including your type of entity and all other relevant information.
- Fax Form SS-4 to the IRS at 855-641-6935
Apply for your EIN by post
- Prepare the Social Security Number of the responsible party for the entity.
- Obtain Form SS-4, Application for Employer Identification Number (EIN) by post or as a download.
- Fill out the form in its entirety.
- Mail Form SS-4 to: Internal Revenue Service, Attn: EIN Operation, Cincinnati, OH 45999
If you apply online, you’re issued an EIN immediately. By fax, the turnaround time is four days on average while you should expect confirmation by post in roughly four weeks. It’s always free to apply for and obtain an EIN.
About EIN Applications
Whether you’re applying online or using Form SS-4, you’ll need to provide the following information:
- Legal name and address of the entity
- Responsible person (a person who owns or effectively controls an entity) and their Social Security Number (SSN)
- Type of entity
- Reason for applying for the EIN
- Date the entity was started or acquired
- Closing month of the entity’s fiscal year
- Number of employees expected in the year
- First date of wages or annuities paid
- Principal activity of the business
- Any third party designated to receive the EIN
If you have all of this information at hand, it should not take more than 15 minutes to complete an EIN application online or on paper.
What Is Your EIN Used for?
Employer Identification Numbers have many uses and are essential for running any business or other organization. Their primary use is to register an organization as an entity with the IRS. This allows the organization to pay income and payroll taxes. Other uses include:
- Opening a bank account for your business
- Obtaining credit
- Hiring and paying employees
- Applying for business licenses
- Filing a tax return by mail
- Creating a qualified retirement plan, such as a 401(k)
- Paying alcohol, tobacco, and firearm taxes
- Taking contracts as a contractor or subcontractor
How to Deactivate an EIN
Once an EIN has been issued for an entity, it is tied to that entity forever. You cannot cancel an EIN or get a new one for the same entity unless major structural or ownership changes are made. An Entity’s EIN is associated with its tax liability, however, and if you close down a business or never even get it off the ground, you can choose to deactivate its EIN. However, before doing this, the entity has to be closed down correctly. This includes filing a final tax return and paying all outstanding taxes owed.
Once the business entity is closed, you can deactivate its EIN by mail. You’ll need to post the IRS a letter including the details of the entity’s EIN, legal name and address, the entity’s EIN assignment notice (CP 575), and the reason for the deactivation.
If your entity is tax-exempt, you can post a similar letter to the RIS or send it by fax to 855-214-7520.
Employer Identification Number vs State Tax Identification Number
Your EIN is also called your federal tax identification number (FTIN) because it identifies your entity as an entity with the federal government, specifically the IRS. If you set up an organization in a state that levies income tax, however, you’ll also need to obtain a state tax identification number or STIN. These numbers are different and have different names depending on the state.
To obtain one, you’ll need to find out which state department handles STINs, which can include tax or revenue departments, comptroller offices, secretaries of state, or other departments. In most states, you can apply online, by fax, or by post just like for your EIN. However, states have different rules about the kinds of entities that require tax numbers.
Employer Identification Numbers Summarized
Employer identification numbers are needed for every kind of US business entity you can imagine and many other non-business entities as well. An EIN is easy to apply for and obtain from the IRS but absolutely necessary if you want to hire employees, pay taxes, open bank accounts, or obtain credit with your entities. If you haven’t yet got your EIN or if you think you may need a new one because your business has changed types or is under new ownership, you can always contact the IRS to assess your situation.
FAQs
Yes, your sole proprietorship counts as a business entity and, therefore, requires its own EIN. This is actually quite beneficial because it creates a separation between your business with its EIN and you as a person with a Social Security Number.
If you apply online, the process, including confirmation, takes 15 minutes at most. If you apply by fax, your application can be processed in around four days, but posted applications can take around four weeks to be processed and confirmed.