If you’re thinking of starting or growing a business in the United States, you’ve likely heard the acronym “EIN” or “FEIN” and wondered what exactly it means for you.
An EIN, or Employer Identification Number (also known as an FEIN or Federal Employer Identification Number), is a unique, nine-digit numerical identifier assigned by the IRS that identifies any business in the USA for federal tax purposes. You can think of an EIN much like a Social Security Number (SSN) for your business! Where an SSN is a unique identifier for personal taxes, an EIN is a unique identifier that is used exclusively for business entities.
Why Every Business Needs an EIN
Strictly speaking, not every business entity requires an EIN — but the vast majority of organizations do. And, even if your business is one of the rare types that doesn’t, having an EIN is the gateway for establishing and growing any viable business in the United States.
Since every tax event or transaction with IRS implications needs to be associated with an identification number, having an Employer Identification Number (EIN) plays a critical role in business compliance and legitimacy. Having an EIN for your business ensures that the IRS has a clear picture of your business activities at tax time.
That said, having an EIN for your business isn’t only about tax benefits. Your company’s EIN can be used in many other facets of running your business, from enabling you to access and sign up for many essential, business-specific products and services to conducting simple daily business activities like opening business bank accounts, applying for business loans, executing employee payroll and benefits programs and more.
In this article, we’ll review the many benefits of having an EIN or FEIN. But first, how do you apply for and obtain an EIN?
How to Obtain an EIN
We recommend applying for your EIN online for the fastest turnaround, but you can apply for an EIN via fax or by mail as well. Be aware that using fax or mail could result in a lengthened turnaround time of up to four weeks or more.
For detailed information on how to properly fill out the form, check out our Ultimate Guide to EINs.
Step 1: Determine your eligibility
- A principal business located in the United States or U.S. Territories may apply for an EIN online. Otherwise, you will need to apply via mail or fax.
- Ensure that the person applying online, the responsible party, has a valid Taxpayer Identification Number (SSN, ITIN, EIN), or you will need to apply via mail or fax.
- A responsible party may only apply for one EIN per day.
What is a "responsible party”? A responsible party is the person who ultimately owns or controls the company or who effectively has majority control over the company. Unless the applicant is a government entity, the responsible party must be an individual, not an entity. For an LLC, this is generally an owner or manager, for a Corporation it can be an owner of officer.
Step 2: Prepare your SS-4 Form
- In the case of applying for your EIN via fax or mail, the IRS Form SS-4 must be completed to process an EIN application
- It’s important to know that your application session will expire after 15 minutes of inactivity — because you can’t save it, you will need to start over.
Be prepared to answer a few additional questions on your application as well, such as:
Step 3: Submit your application
Once your validations are completed, your EIN will be processed and provided in the same manner as you applied.
Upon receiving your EIN confirmation notice, you have the option to download, save, and print a copy. Additionally, our application provides a dedicated storage solution, ensuring that your EIN is safely archived within our system. Should you ever need to access or retrieve your EIN, you can easily do so through our platform. If for any reason we are unable to obtain your EIN, we require you to upload your EIN confirmation notice directly into the designated area within our application. This ensures that all your important business identification documents are centralized and accessible when you need them.
But what happens if you should misplace or lose your EIN number? Check out our article How to Find the EIN for Your Business for information on how to find your EIN or the EIN of another business.
Key Business Operations That Require an EIN
Other than for tax filings, why should you obtain an EIN for your business? We can think of at least five other advantages to having an EIN ready for your company.
Banking and Finance
While not every bank or lending institution requires you to have an EIN when applying for a business product, the majority of financial institutions do require one — along with other forms of identification.
More than this, having an EIN will open up banking products and financing opportunities that you would not have access to without one!
That could mean better products, better terms, and more.
Employment and Payroll
Having an EIN is an IRS requirement for executing all tax responsibilities related to having employees, including withholding, depositing, reporting, and paying employment taxes.
As an employer, you are also required to provide certain forms to your employees, and they must provide certain forms to you, including forms you are required to send to the IRS and SSA. Completing all of these forms also requires you to refer to your EIN.
For example, Federal Income Tax Withholding Form W-4 must be completed by every new employee and provided back to you, the employer, to provide to the IRS and SSA. These forms must be kept on file for all employees, including former employees, for whom you must maintain records for three years post-termination. You’ll also need to keep Form W-2s, which are copies of filed tax forms, plus dates and amounts of all tax deposits.
Additionally, there are a number of other tax reports you’ll be required to submit either quarterly or annually. The IRS’s Employer's Tax Guide provides all the guidance you’ll need for federal filing requirements. But remember, states may also have tax-filing requirements of their own. For state tax-filing requirements, please visit your state tax agency.
Corporate Transparency Act Compliance
The Corporate Transparency Act (CTA) imposes additional reporting requirements on small businesses and corporations, primarily aimed at curbing illegal activities by enhancing the transparency of business ownership. An EIN is essential for compliance with the CTA, as it is used to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). This reporting is crucial for businesses to meet federal regulatory requirements and to maintain operational legitimacy.
Taxation Nuances
Having an Employer Identification Number allows many types of businesses to report their income, deductions, and other financial details accurately to the IRS, ensuring that their tax filings are accurate and separate from their personal income filings. To do so, on many of these forms you will need to reference your EIN for compliance. Whether a sole proprietorship, partnership, corporation, or LLC, you can find links to the appropriate IRS forms for your business here.
An EIN is a key reference point to help businesses maintain and track applicable regulatory requirements at both federal and state level, including employment requirements, licenses, and permits.
Strategic Advantages of Having an EIN
Having an Employer Identification Number isn’t just about tax compliance. Obtaining an EIN for your company is also a strategic decision that can help you protect and grow your business in a number of different ways.
Identity Protection and Privacy
First and foremost, unless you obtain an EIN for your company, you will need to link your business expenses, taxes, and all other transactions to your personal SSN or ITIN. While many sole proprietorships and small business owners choose to do this when first establishing their businesses, not taking steps to clearly define your personal versus your business transactions can quickly become challenging and lead to an increased risk of tax audit.
More importantly, each time you use your SSN or ITIN for any transaction, you create a new opportunity for access to your personal information, which could lead to identity theft.
The best way to protect your personal information as a sole proprietor or single-member LLC is by ensuring that your business has its own independent filing ID with the IRS in the form of an EIN.
Building Business Credibility
Establishing credibility is important for any business. But most new business owners don’t realize there are different audiences with whom building credibility is key.
- Credibility with Customers: Building trust with your customers is facilitated by an EIN. Depending on your client base, they might prefer to use your EIN for their own tax reasons, ensuring transparent and straightforward transactions.
- Credibility with Wholesale Distributors: Wholesale distributors often perform an EIN check before accepting a retailer as a client. Possessing an EIN not only signals to wholesalers that you run an IRS-compliant business but also demonstrates your commitment to professional business practices.
- Credibility with Employers/Partners: Using your business’s EIN instead of your personal SSN or ITIN to delineate your personal and business transactions is a clear indicator to employers, partners, and the IRS that you are operating as a legitimate business entity and not merely as an individual contractor.
- Credibility with Financial Institutions: Apart from an EIN, obtaining a DUNS number is a strategic move to establish your business’s credit history. This unique nine-digit identifier is used to create your business credit file, which potential lenders and suppliers may consult to assess your creditworthiness and financial reliability. This can be particularly advantageous when seeking business loans or trade credit.
- Credibility with the IRS: Leveraging your EIN for business tax deductions can potentially reduce the likelihood of an IRS audit. This is because using an EIN helps demonstrate that your business operations are substantive and active, reinforcing your credibility in the eyes of federal tax authorities.
Licensing and Permits
Business licenses and permits can be required at local, state, and federal levels depending on the type of business activities your company engages in. Also, applications for obtaining such licenses and permits could require an EIN.
At a local level: Some businesses need a “general business license” to operate in the specified area. While this is usually just a tax-registration certificate, this is normally just the first of many licenses or permits you’ll need in the city in which your business is located.
At a state level: While the specific licenses and permits vary at the state level, some businesses require at least one, like state tax permits, occupation-specific licenses, and licenses required for any number of regulated professions, to name a few. Check out the Small Business Administration (SBA) website for information and links to business licensing agencies for all 50 states.
At a federal level: At minimum, businesses that are regulated by federal agencies must apply for and obtain specific licenses and permits from those regulatory agencies. For example, financial institutions or securities companies would require specific federal documentation. It is up to you to determine whether there could be other federal licenses and permits applicable to your business.
As you can see, there are a lot of details when it comes to business licenses and permits that require expertise. It’s always a good idea to consult with a legal professional who can help ensure that you’ve taken care of all the regulatory requirements your business requires.
Impact on Business Growth
As you can see, your company’s growth can be directly impacted by how you’ve set up the operational side of your business. From opening your first business bank accounts to establishing credibility, from hiring employees, setting up payroll, and opening up employee benefits programs to expanding your company to new locations or operations, having your EIN already set up will allow you to push your business growth forward with greater ease and speed.
Wrapping Up
From operational advantages to strategic advantages, applying for and obtaining an EIN is a key element to properly setting up your business for success. By obtaining an EIN when you launch your business, or shortly thereafter, you’ll open your company up to experiencing a wide array of advantages that will make maintaining and growing your business easier, smoother, and faster over time.
FAQS
An EIN is a nine-digit numerical identifier provided by the IRS that links an individual business to all of the activities and actions that have tax implications in the USA.
Sole proprietors do not necessarily require an EIN. However, there are many business activities that without an EIN these organizations would not be able to access. Please refer to our Ultimate Guide to EINs to learn more about EIN requirements for sole proprietors and to our article Does an LLC Need an EIN? to learn more about the benefits of having an EIN for different types of LLCs.
Yes, an Employer Identification Number (EIN) is a type of Tax Identification Number (TIN) issued by the Internal Revenue Service (IRS) to identify businesses for tax purposes. It is also known as a Federal Employer Identification Number (FEIN). While an EIN is specifically for businesses, including corporations, partnerships, and in some cases, sole proprietors, it is one of several types of TINs used by the IRS and other government agencies:
- Social Security Number (SSN): Issued to individuals, including both citizens and certain non-citizens, primarily for personal tax and employment tax reporting purposes.
- Individual Taxpayer Identification Number (ITIN): Issued to individuals who need a U.S. taxpayer identification number but are not eligible to obtain an SSN.
- Adoption Taxpayer Identification Number (ATIN): Temporarily issued to individuals adopting a U.S. child who cannot obtain an SSN for the child in time for filing their tax return.
- Preparer Tax Identification Number (PTIN): Required for tax return preparers who must include this number on U.S. federal tax returns or refund claims they prepare.
Each type of TIN has specific purposes and is necessary for different tax-related activities, ensuring that all entities and individuals comply with U.S. tax laws.
In some cases, regional banks might permit a business owner to open a business account using their SSN. However, most financial institutions will require both an EIN and an SSN to open business accounts.
The best reference we offer is our Ultimate Guide to EINs. In this article you’ll find everything you need to know about who needs an EIN and the process to apply for and obtain an EIN.
There are a number of ways to find out if a business has a valid EIN. In fact, we outline all of the ways to find your business’s EIN or the EIN of another business in our article How to Find the EIN Number for Your Business.
