- An employer identification number (EIN) is assigned to a business by the IRS.
- EINs serve a similar purpose as Social Security numbers do for individuals.
- Sole proprietors aren’t required to get an EIN, but having one can still be useful for them.
- This article was reviewed for accuracy and clarity by Lisa Niser, an expert on Personal Finance Insider’s tax review board.
- Read more stories from Personal Finance Insider.
An employer identification number (EIN) is a unique nine-digit number issued by the Internal Revenue Service that identifies businesses for tax purposes. It is also known as a federal tax identification number. It serves a similar purpose as a Social Security number does for an individual. Most businesses are required to get an EIN, which is free and can usually be obtained the same day you apply for one on the IRS website.
Does my business need an EIN?
An EIN is mandatory for most businesses, and optional for others. Businesses that meet any of the following conditions must have one:
- Has employees (including household employees)
- Operates as a corporation or partnership
- Has a Keogh plan
- Administers an estate or trust
- Files tax returns for employment, excise, or alcohol, tobacco and firearms.
- Withholds taxes on income paid to a non-resident alien
- Is involved with non-profit organizations, farmers’ cooperatives, real estate mortgage investment conduits, or plan administrators
Do I need an EIN if I’m self-employed?
Businesses that don’t need an EIN are those that are not required by the IRS to file taxes separately from their personal income taxes. These businesses also must not meet any of the conditions listed above. A self-employed individual acting as a sole proprietor who doesn’t pay employees, for example, does not necessarily need an EIN.
“However, it may still be a good idea for a sole proprietor who doesn’t need to get an EIN to obtain one anyway, especially since doing so is free and easy on the IRS website,” says Logan Allec, a certified public accountant and founder of the personal finance site Money Done Right.
“For example, having an EIN for your business will allow you to use your EIN rather than your Social Security number when filling out Forms W-4 and W-9,” Allec says. “Having an EIN can also help with being approved for a business bank account or getting a loan for your business.”
There are other potential benefits of obtaining an EIN as well. Business owners can use them to keep personal and business finances separate. You won’t have to share your Social Security number with customers or clients for business purposes. And an EIN can help protect your personal credit score.
How do I get an EIN?
Getting an EIN is a quick and easy process, particularly for online applicants. Any business located in the US or US territories can qualify if the applicant has a Social Security or other taxpayer identification number.
Before you start, you’ll want to make sure you have your business information handy. The IRS asks for:
- Business details, such as name and address
- The name of the principal owner or controller of the business.
- Taxpayer identification number (TIN) of the responsible party.
- Type of entity (sole proprietor, partnership, corporation, etc.)
- Date the business started or was acquired
- Highest number of employees expected in the next 12 months
- Reason for applying for an EIN
- Principal activity or line of merchandise for the business
- Whether or not the entity has applied for an EIN before
There are four ways to apply for an EIN.
- Online through the IRS website. Applying for an EIN online is the quickest method for obtaining one. You’ll answer questions on the IRS website about your business. The EIN is issued immediately after the information is validated online.
- By filling out Form SS-4. The form is a single page and can be mailed or faxed to the IRS.
- By phone. International applicants can call the IRS directly at 267-941-1099 with questions about Form SS-4.
- With the help of your accountant or banker. Professionals who provide financial services to you may apply for an EIN on your behalf.
Do I need a new EIN?
If your business already has an EIN, there are some scenarios when you may need to file for a new one. In general, if your business has changed ownership or if your business has changed its structure, you will need a new EIN.
Some examples of when you will need a new EIN include:
- A sole proprietor incorporates or takes on a new partner
- A sole proprietor or partnership buys or inherits a business
- A corporation is created after a merger
- A corporation receives a new charter from the secretary of state
- A corporation changes to a partnership or sole proprietorship
- A partnership is ended
Your business doesn’t need a new EIN under the following circumstances:
- The business has changed its name (although you will want to inform the IRS of the name change)
- You change your business location
- You run several businesses
- A corporate reorganization only changes the identity or business location
- If you’re a division of corporation
An EIN is a requirement for most businesses. However, you might want to consider getting one even if you don’t need to. There’s no cost involved, and it can help you in any number of circumstances where you can use it instead of your Social Security number.
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