Obtaining and Benefiting from an Employer Identification Number – Federal Tax ID Numbers
‘The road to recovery is to stimulate small business and innovation by reducing taxation, regulation, and litigation.’ – Sandy Adams, former Congresswoman, U.S. House of Representative
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, 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.
Start your dream business today with an LLC!
This EIN and FEIN number business guide will walk you through the obtainment and use of EINs.
Learn more in my guide: How to Start Your Small Business Legally – Important Legal Requirements
EIN stands for ‘Employer Identification Number’. The 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.
Like your SSN, all EIN is nine digits. They are always described in the format XX-XXXXXXX. 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.
Prior to 2001, the first two digits corresponded to the geographic area of the business’s home office. Due to IRS centralization, beginning in 2001, the first two digits of newly assigned EINs only indicate which IRS campus assigned the EIN.
If you are looking for the EIN of the company where you are employed, it is described on your own W-2. Your employer’s payroll or accounting department will also be able to supply you with the EIN.
If you have a legitimate business need of another company’s EIN, the best thing to do is to call and ask them for it. As long as you are candid and credible, there is no reason for them not to give it to you.
If it is a publicly traded company, it probably has a website with an Investor Relations page. The EIN should be included on Filing Documents that the business has access to through this page. The Securities and Exchange Commission (SEC) also keeps a comprehensive database called EDGAR (Electronic Data Gathering, Analysis, and Retrieval) which has all of the information.
If the company you are investigating has filed forms with the local city or county government (e.g. for a permit), these complete documents, including the EIN, are probably part of the public record.
Need help calculating your startup costs?Learn how to correctly estimate your startup budget and capital needs – including costs list by industry in my guide here
Also known as the Federal Employer Identification Number (FEIN), the EIN is a single, federal 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.
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. First of all, not all business entities are required to have an EIN. However, even if you don’t NEED an EIN, you might WANT one. Let’s dig through the details.
If you are a freelancer or an independent contractor, you likely don’t need an EIN. You can simply report your earnings using your SSN.
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 all business entities (partnerships and corporations) to obtain and use an EIN.
If my business doesn’t NEED an EIN, why would I WANT one?
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 I have a DBA and am a Sole Proprietor or my business is an LLC, do I need an EIN?
Probably. But not necessarily.
A DBA (Doing Business As) is a business’s registered, ‘fictitious’, the name that differs from the legal name (e.g. Laundromat, INC dba ‘Dave’s Dry Cleaners’). Unlike a DBA, an LLC (Limited Liability Corporation) is a legal entity, separate from the business owner.
Technically, the fact that you have registered a DBA or formed an LLC does not change your tax filing status. If you are a sole proprietor that has registered a DBA or formed an LLC, and you do not pass any of the other standards for the requirement of an EIN, you still do not need one. If you are a partnership or corporation, you need an EIN.
If I don’t have employees, do I need an EIN?
This is why the name “Employer Identification Number” is misleading. If you are a corporation or partnership (or satisfy any of the other requirements under sole proprietor), you need an EIN whether or not you employ anyone else.
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. I found it confusing and frustrating to get an EIN number at the IRS site.
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. Whichever route you take, the process utilizes the IRS Form SS-4.
Who is the ‘Responsible Party’?
Basically, in this context, the term ‘responsible party’ means someone who is legally authorized to act in the best interest of the company. According to the IRS, the responsible party is ‘the individual or entity that controls, manages or directs the entity and the disposition of the entity’s funds and assets…’. A single responsible party can only apply for one EIN per day.
Once you have successfully completed the online or phone application, the physical EIN certificate should be mailed out within two weeks. If you submit a complete application by mail, you can also receive your EIN certificate in approximately two weeks.
Congrats! Now you have your very own Employer Identification Number. Before we talk about how to use this number, let’s explore a few situations where you may need to stop using one EIN and get another one.
EINs Do Not Expire. EINs Do Not Change.
Employer Identification Numbers do not, themselves, expire or change. There are, however, situations where you need to obtain a new EIN.
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.
Sole Proprietorship
Partnership
Corporation
Other situations generally do not require a new Employer Identification Number. You’ll notice that the answer changes depending on whether you are a sole proprietor, a part of a partnership, or a corporation. Also, certain situations are unique to one type of business entity or another.
Although there are situations where it is 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 is not due to a specific law, per se, but because ownership change almost always requires a change in the structure of the company such that a new EIN is required.
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.
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. As long as you are the ‘Responsible Party’, you can contact the IRS directly via their Business and Specialty Tax Line (800) 829 4933.
Now that we’ve sorted through some of the special situations involving your EIN, let’s look at what it actually does for you. As we’ve mentioned before, think of your EIN like the Social Security Number for your business. As such, it doesn’t really DO much. It’s a marker that the IRS uses to identify your business for tax purposes. That said, there are certain ways that you can leverage the power of what the EIN represents (the validity of your business entity) to your advantage.
Business Licenses & Permits
You can use your EIN to apply for various permits and licenses that are required by your business.
Business Checking and Savings Accounts
You can use your EIN to open a business banking account in the name of your business.
Business Credit Cards
You can use your EIN to open a small business credit card in the name of your business. This is not only beneficial for cosmetic reasons (the name of your business on the card and transactions) but to distance yourself from credit-related risk.
Vendor Accounts
You can use your EIN to open and maintain accounts with various vendors.
Supplying Your Independent Contractors with a Form 1099.
If you hire contractors and pay them more than $600 a year, the IRS requires you to furnish them with a form 1099. You’ll need an EIN for this.
Like your social security number, your Employer Identification Number can be used (generally in combination with other information) to commit identity theft and fraud.
Finally, just as you would with your personal information, carefully monitor your credit and online presence for signs of abuse or fraud.
We’ve made a pretty comprehensive pass of Employee Identification Numbers (EIN).
We’ve covered:
Before we conclude, let’s answer some Frequently Asked Questions that crop up whenever EINs are introduced. We mentioned some of these earlier, but it’s good to call out these particular queries:
Is an EIN the same as these other Acronyms?
Federal Employer Identification Number (FEIN)
Yes.
Federal Identification Number (FIN)
Tax Identification Number (TIN)
Not Quite. It is ONE kind of Tax Identification Number. The other is your Social Security Number (SSN).
Should I use an EIN or SSN to report income from my 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.
Should I put my EIN on invoices?
Probably Not. While vendors and clients may need your Employer Identification Number each year to reconcile their finances and file their 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.
Does having an EIN mean that I need to file a separate tax return?
Not Necessarily. The type of business entity dictates how you file your taxes, not whether or not you use an Employer Identification Number. If you are a sole proprietor or a single-member LLC, you need to file your business income and expenses on a Schedule C which is part of your personal income tax. If you are a partner or a shareholder in a corporation, you file your business taxes differently, using different forms.
Do I need an EIN to open a business banking account?
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.
Can one EIN be used for multiple businesses?
No. (Is the short answer.) Separate business entities require unique Employer Identification Numbers. If you are the sole proprietor of three separate businesses, you need to obtain and utilize three different EINs. However, this does not apply to different locations of the same business. If you are the sole proprietor of three locations of the same business, you only need one EIN.
Also, different DBAs of the same business entity do not require different EINs. If you own a single company that has three business locations, each operating under a different DBA, you only need one EIN. For tax purposes, the IRS cares about the structure of the company, what taxes are withheld from employees and what taxes the company pays. It does not care what the company is called.
Is my EIN a public record?
No. (Technically.) The IRS will not give out your EIN to an unaffiliated party. However, as we touched on earlier, there are ways for people to find it. If you are publicly traded, your EIN is on file with the SEC and if you’ve filed for permits, your EIN may be a part of the public record. People can also pay credit bureaus or commercial EIN databases for your business credit report or to access your company EIN directly.
How Can I Look Up a Company EIN number?
The easiest place to look up your employer company EIN number is on your W2 form. Find the 9-digit number with a dash separating the second and third digit. It is often above your employer’s name or below the address. Here’s a helpful video to show you how.https://www.youtube.com/embed/B23922tofVE
The Next Steps
I know that tax research can seem dry and monotonous, but it is critical to ensuring the protection and profitability of your small business. If you’ve read through this article, you have already done the more due diligence that many of your counterparts… and your competition.
Take the next steps by hiring a professional to review your tax filing status and guarantee the actions you are taking. This can go a long way toward ensuring legal compliance, eliminating penalties and minimizing unnecessary taxation. Then, just as you have done on this topic, 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.
Now that you know all about EIN numbers, and have applied for your own Federal Tax ID number you are ready to start your business.
More FAQ
What does INC Mean in Business?
How to Open a Business Bank Account?
Best Accounting Software for Sole Proprietors
Disclaimer: The content on this page is for informational 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 October 22, 2024
Do I Need an EIN to Start a Business?
EIN Number
by Team ZenBusiness, on November 19, 2024
Tax ID Numbers
by Team ZenBusiness, on October 24, 2024
How to get an EIN as a non-US resident
by Team ZenBusiness, on October 16, 2024