What is an Employer Identification Number (EIN)?

What are EINs used for?

EINs are used by the IRS to track businesses that need to file tax returns. Although they are mandated by the IRS, EINs can also be beneficial to business owners. Businesses are not allowed to operate without EINs, so if an entrepreneur wants to run a business, they’ll need to secure one.

In addition to filing taxes, EINs are also needed for business owners to hire and pay employees, open bank accounts or credit cards, file for business licenses, and separate business finances from personal finances.

Who Needs an EIN?

According to the IRS, if your business fits one or more of the following criteria, you’ll need an EIN:

• You hire any number of employees.
• The structure of your business is a corporation or partnership.
• You deal with trusts, estates, or non-profits.
• You file employment, excise, alcohol, tobacco, or firearms tax returns.
• You withhold taxes on income, other than wages, paid to a non-resident alien.
• You have a Keogh plan.

In some cases, an EIN isn’t required, but it’s almost always a good idea. You DON’T need an EIN if:

• You are a subcontractor or freelancer.
• Your business is a sole proprietorship and you don’t have employees.

How to File for an EIN

It is up to the business owner to apply for an EIN, but luckily, doing so is completely free. You can apply online, over the phone, by mail, or even by fax. Prior to filing, fill out Form SS-4: Application for Employer Identification Number. It can be found here, on the IRS website.

The form will ask for detailed information about your organization, include the legal name of the entity, the mailing address, the type of entity, the operating industry, the start date of your business, and the reason for the application. Be sure to fill out this form carefully and thoroughly.

Once the form is filled out and submitted, the IRS has a fairly quick turnaround. For online applications, EINs are often granted almost immediately after submission.

EIN vs. TIN

An Employer Identification Number sounds very similar to a Tax Identification Number, but in actuality, EINs fall under the umbrella of TINs. EINs are a type of TIN that businesses use. Other Tax Identification Numbers are:

• Social Security Number (SSN)
• Individual Taxpayer Identification (ITIN)
• Taxpayer Identification Number for Pending U.S. Adoptions (ATIN)
• Preparer Taxpayer Identification Number (PTIN) 

Summary:  

• An Employer Identification Number (EIN) is a unique nine-digit number assigned to businesses by the IRS for tax purposes.
• Businesses will need an EIN to file taxes, hire employees, open bank accounts or credit cards, apply for business licenses, and keep business finances separate from the owner’s personal finances.
• An EIN is required by the IRS if a business is a corporation or partnership, hires employees, and operates in certain industries. See above for the full list.
• Filing for an EIN is free and can be done online, by mail, phone, or fax using Form SS-4. Once submitted, the IRS typically issues the EIN promptly, especially for online applications