Employer Identification Number (EIN)

What is an EIN?

An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to identify a business entity for tax purposes. It functions similarly to a Social Security Number (SSN), but it is used for business rather than individual identification.

EINs are essential for businesses of all sizes and structures, from sole proprietors and partnerships to corporations and nonprofits.

The IRS uses the EIN to track a business's tax reporting. Whether you're opening a business bank account, applying for licenses, or filing tax returns, your EIN serves as a vital identifier. Although it is primarily used for employment tax reporting, having an EIN can streamline many other business processes and interactions with federal, state, and local agencies.

How Do I Get an EIN?

Obtaining an EIN is a straightforward process provided by the IRS at no cost. You can apply online, by fax, mail, or telephone (for international applicants). The fastest and most convenient method is to use the IRS online EIN application, which offers immediate issuance of your EIN upon completion.

Here are the basic steps:

Visit the IRS website and access the EIN application.
Choose the legal structure of your business.
Provide the required information, including name, address, and responsible party.
Submit the form to receive your EIN instantly.

If you prefer traditional methods, you can submit IRS Form SS-4 by mail or fax. While fax processing takes about four business days, mailed applications may take up to four weeks.

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The Benefits of Getting an EIN

Securing an EIN offers several important benefits for your business, even if it isn't legally required. These include:

Separation of personal and business finances: An EIN allows you to open business bank accounts and apply for credit, helping you maintain clear financial boundaries.
Employee hiring: You cannot legally hire employees or set up payroll without an EIN.
Vendor and contractor relationships: Many larger businesses and government agencies require an EIN before doing business with you.
Business credit and identity: An EIN contributes to establishing your business credit profile.
Required for certain licenses and permits: Depending on your state and industry, an EIN may be a prerequisite for licensing.

EIN vs. SSN: Key Differences

Although an EIN and SSN both serve as identification numbers, their usage differs significantly. An SSN is issued to individuals, while an EIN is issued to businesses. Here are some key distinctions:

An EIN is public, whereas an SSN is private and more sensitive.
EINs are required for many business activities, while SSNs are required for personal tax and identity verification.
Using an EIN helps protect your personal identity when conducting business.

EIN for Non-U.S. Residents

Foreign individuals and entities can also apply for an EIN, even if they don’t have a Social Security Number or live in the United States. To apply, international applicants must submit Form SS-4 via fax or mail and may need to call the IRS directly. While the process can take longer than the domestic application, having an EIN is often necessary for international businesses operating or planning to operate in the U.S.

Updating or Canceling an EIN

If your business undergoes significant changes such as ownership transfer, structural reorganization, or a name change, you may need to update your EIN information or apply for a new number. However, not all changes require a new EIN. For instance, changing your business address does not necessitate a new number, but it should be reported to the IRS.

To cancel an EIN, you must write to the IRS and explain why the number is no longer needed. Include the complete legal name of the entity, the EIN, the business address, and the reason for the closure. Keep in mind that an EIN is never reused or reassigned.

Summary of EINs

Understanding the role and function of an EIN is crucial for any business owner. Here are the essential points to remember:

An EIN is a nine-digit number used to identify businesses for tax purposes.
You need an EIN if you have employees, operate as a corporation or partnership, or meet other IRS criteria.
Applying for an EIN is free and can be done online via the IRS.
An EIN offers many benefits, including identity protection, financial separation, and legal compliance.
Businesses can update their EIN records or cancel the number if necessary.

Taking the time to apply for and understand your EIN is a small but important step in building a compliant and professional business.

Definition of Employer Identification Number (EIN)