As a small business owner or aspiring entrepreneur, government forms and tax considerations are probably not your favorite topics. You’d rather be researching a new product, orchestrating an exciting marketing campaign or projecting next quarter’s profits. However, if you fail to educate yourself about crucial legal logistics for business operations, you could end up causing excessive headaches and costing unnecessary money.
For many entrepreneurs, obtaining an Employer Identification Number (EIN) is a critical early step in the process of opening and running a successful business. Creating a memorable business name is of vital importance also.
In this guide, we’ll walk you through how to get an EIN, how to use it, and more.
EIN stands for “Employer Identification Number.” The federal Internal Revenue Service (IRS) assigns this unique, nine-digit number to business entities and uses it for tax identification purposes. Basically, an EIN is a Social Security number (SSN) for a business structure.
Like SSNs, EINs are all nine digits. They are always written in the format XX-XXXXXXX. That’s different from SSNs, which are formatted XXX-XX-XXXX.
Some EINs have letter prefixes: A – Agricultural Employer; F – Federal Government; G – State or Local Government; H – Household Employer; N – Nonprofit Employer; S – Foreign Subsidiary of US Employer; W – Reporting Entity not subject to Social Security taxes. Don’t be alarmed if your EIN has one of these.
Prior to 2001, the first two digits corresponded to the geographic area of the business’s home office. Now, however, the first two digits of an EIN only indicate which office assigned your EIN.
The EIN can also be called a Federal Employer Identification Number (FEIN). But no matter whether you call it the EIN or FEIN, an EIN is a single, federal tax identification number. Most states also require businesses to obtain a state tax ID number (sometimes referred to as a “state identification number”).
Additionally, states may assign different state tax ID numbers for different purposes: reporting income tax, sales tax, withholding, unemployment, and insurance. To further complicate this, a single business may be required to have separate state tax IDs for each state in which it operates.
Thankfully, the federal government only requires a single Employer Identification Number for a business’s federal taxes.
Now you know a little about Employer Identification Numbers. Before you jump into an application, let’s make sure you actually need or want one.
Not all businesses are legally required to get an EIN. The most common reasons businesses are required to get one include hiring employees or having multiple owners (like a partnership or corporation), but there are other reasons you might be required to get one.
But even if you don’t technically need an EIN, you might want one. Let’s walk through the details.
If you are a single freelancer or an independent contractor, you likely don’t need an EIN. You can simply report your earnings using your SSN. Your clients will provide you with a Form 1099 if they pay you more than $600 during the calendar year, but this form doesn’t require an EIN.
Sole proprietorship simply means that, legally, you own the business by yourself. As a sole proprietor, you may need to obtain an EIN if you:
The IRS requires certain business entities (partnerships and corporations) to obtain and use an EIN. This number is crucial for filing federal taxes and ensuring compliance with federal tax regulations.
LLCs may or may not need an EIN. If there is more than one member (meaning the business is taxed like a partnership), then they need to get an EIN.
But if an LLC is a single member LLC (has only one owner), and it doesn’t meet any of the other criteria for needing an EIN, then they can go without one. However, many of these LLCs opt to get an EIN anyway.
If you are a contractor or a sole proprietor and are not required by the IRS to have an EIN, you may still want one. An EIN benefits your business by:
If you get a “doing business as” name, sometimes called a trade name or fictitious name, rest assured that it does not impact your need to get an EIN (or not). Getting a DBA has no bearing on your tax filing status, so it has no bearing on your need (or lack thereof) to get an EIN.
The name “Employer Identification Number” is a bit misleading. Granted, the primary reason the number is needed is to hire employees and manage employment taxes. But some businesses might not have employees but still be required to get an EIN. For example, a small business that’s structured as a corporation or a multi-member LLC would still need to get an EIN, even if they don’t plan to hire employees for years.
Now that you’ve done your due diligence and examined your need for an Employer Identification Number, it’s time to apply for one.
The IRS operates an online portal to apply for an Employer Identification Number. Once you begin the application, you must complete it in one session. The application times-out after 15 minutes of inactivity, so make sure to have all of your information ready.
EIN applicants must be operating a business within the United States or US Territories, already have a valid Taxpayer Identification Number (e.g. SSN, EIN) and be a “responsible party” representing the business for which they are applying. A “responsible party” is someone who is legally authorized to act in the company’s best interest. A single responsible party may only request one EIN per day.
Whether you file online or using a paper form, you’re filling out Form SS-4.
EINs are issued right away for online applications, but the physical EIN certificate will take up to two weeks to arrive.
Generally speaking, EINs don’t expire or change in and of themselves. But there are circumstances that might require you to get a new EIN for your business. Let’s talk through those scenarios.
Changes to your business may necessitate discontinuing the use of one EIN and obtaining another. Some events or combination of circumstances may require clarification or professional tax advice, but others are pretty clear-cut. Here is a short list of situations that require a new Employer Identification Number.
Generally speaking, you need to get a new EIN if there are substantive changes to the structure or foundation of your business.
Other situations generally do not require a new Employer Identification Number. But the circumstances vary depending on your business structure. Let’s walk through the business-specific scenarios that don’t actually require you to get a new EIN.
There may be other changes in your business that may or may not require you to get a new EIN. If in doubt about your scenario, it’s recommended to chat with an attorney for customized guidance.
Although there are situations where it’s possible to transfer an EIN from one owner to another, most of the time a new business owner will need to get a new EIN. This isn’t due to a specific law but because ownership change almost always makes the company structure change, which necessitates a new EIN.
As you don’t use your Employer Identification Number every day (especially once you get established), you may find yourself in a situation where you can’t remember or find it. You may also be in a situation where you’re taking over a company or a position in a company and your predecessor does not provide it to you. Luckily there are several avenues you can take to retrieve it. Your tax records, including W-2s and tax return documents, will have your EIN listed.
If you’ve already filed taxes for at least one year, the EIN will be on your and your employees’ W-2s and tax return documents. If you used your EIN to open a business bank account, your bank will have a record of it. If you used your EIN to file for a permit, your local municipality will have a record of it.
Finally, a business’s responsible party can contact the IRS directly via their Business and Specialty Tax Line to get the EIN again. The IRS will not provide this information to someone who isn’t the responsible party.
An EIN is, at the end of the day, just a Federal tax ID number for you business. On the surface, it doesn’t really do much. But there are certain ways you can leverage the power of what the EIN represents (the validity of your business entity) to your advantage. Here are several:
Like your Social Security Number, your Employer Identification Number can be used (generally in combination with other information) to commit identity theft and fraud. Here are some quick things to avoid:
Finally, just as you would with your personal information, carefully monitor your credit and online presence for signs of abuse or fraud. If possible, subscribe to credit monitoring services so you can be mindful of suspicious activity tied to your business. It’s also a good idea to occasionally search public records for any mentions of your business and investigate any unfamiliar references.
Tax research can seem dry and monotonous, but by doing this research now, you’ll help set your business up for success. If you can, take the next step and hire a professional to help you with your taxes. A huge part of running a successful, compliant business is by delegating complicated tasks to qualified pros.
Last but not least, continue to expose yourself to information that can help you maximize the success of your small business. Always be learning. Always be growing yourself and your business.
Often you don’t have an option. When you do have a choice (as in a Sole Proprietorship with no employees), the advantages of using the EIN typically outweigh the disadvantages. Personal protection alone is a strong reason to use an EIN over an SSN.
Probably not. While vendors and clients may need your Employer Identification Number each year to reconcile their finances and file taxes, they don’t necessarily need your EIN on every invoice. As we discussed earlier, if you don’t need to provide your EIN in a given situation, it’s best not to.
Probably. Increasingly, banks require all businesses to open business bank accounts using an EIN. Even if you are a sole proprietor and the government doesn’t require you to have an EIN, your bank might.
No; separate business entities always need to have their own EINs, even if they’re owned by the same person. That’s because they’re unique legal entities. In contrast, if the same business opens multiple locations, they do not need separate EINs for each location.
Yes. Registering for state taxes and obtaining a state tax ID is essential for complying with state tax regulations and paying state taxes. Failure to register can result in penalties and fees.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
EIN Resources
Tax Information and Resources
Related Articles
Federal and State Tax ID Numbers
by Team ZenBusiness, on January 15, 2025
Do I Need an EIN to Start a Business?
by Team ZenBusiness, on November 26, 2024
EIN Number
by Team ZenBusiness, on December 31, 2024
Tax ID Numbers
by Team ZenBusiness, on January 21, 2025
How to get an EIN as a non-US resident
by Team ZenBusiness, on December 27, 2024
Start your dream business today with an LLC!