What is an EIN and do I need one for my business?
An Employer Identification Number is the federal tax identification number for a business, the way a Social Security number identifies a person. You need one if you have employees, operate as a corporation or partnership, or file certain returns, and the IRS issues it directly at no cost. Many single-owner businesses get one anyway to avoid using a personal number.
Key points
- An Employer Identification Number is the nine-digit federal tax identifier the IRS assigns to a business, used on returns, payroll filings, and bank paperwork.
- A business must have an EIN if it has employees, operates as a corporation or partnership, or files employment or excise tax returns.
- A sole proprietor or single-member LLC with no employees is not always required to have an EIN but usually obtains one to keep a Social Security number off W-9s.
- The IRS issues an EIN at no cost, and the online application returns the number immediately in most cases.
- An EIN identifies a business but does not change how it is taxed; a single-member LLC with an EIN is still taxed as a sole proprietorship until it elects otherwise.
What is an EIN used for?
An Employer Identification Number is a business's nine-digit federal tax identifier, issued by the IRS. It appears on income tax returns, payroll filings such as Forms 941 and 940, information returns such as Form 1099-NEC, and the Form W-9 a business gives its customers, and banks require it to open a business account.
It functions the way a Social Security number does for a person: it is how the IRS ties filings, deposits, and notices to one taxpayer.
Who is required to get an EIN?
A business must have one if it has employees, operates as a corporation or a partnership, files employment or excise tax returns, withholds tax on payments to a non-resident alien, or has a Keogh retirement plan. Trusts, estates, and non-profit organisations also need one.
A single-member LLC or sole proprietor with no employees is not always required to have one and can file on a Social Security number. Most get an EIN anyway, because using it on W-9s, vendor forms, and bank paperwork keeps the owner's personal number off documents that circulate widely.
How do you apply, and what does it cost?
The EIN is free directly from the IRS. Applying online returns the number immediately in most cases; Form SS-4 by fax or mail takes longer. Third-party services that charge to obtain one are selling a form you can complete yourself in minutes.
The application names a responsible party, the individual who controls the entity, and that person must be reported to the IRS if they change. Only one EIN is issued per responsible party per day.
What does an EIN not do, and when do you need a new one?
An EIN identifies the business; it does not by itself change how the business is taxed. A single-member LLC with an EIN is still taxed as a sole proprietorship, and a multi-member LLC as a partnership, until it files Form 8832 or Form 2553 to elect otherwise. Owners who assume the EIN made them a corporation discover the gap at filing time.
Whether a change requires a new EIN depends on the specific change. A sole proprietor who incorporates or takes on a partner needs a new one; a corporation that elects S status, changes its name, or moves does not. A new number when the old one should have continued splits payroll and filing history across two accounts, so confirm the rule before applying again.
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Sources
Related guides: high income professionals
Mena Hemaia, CPA, CIA
Chief Executive Officer, Accountack — West Palm Beach, Florida
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