An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is a unique nine-digit number issued by the Internal Revenue Service (IRS) to identify a business entity operating in the United States. This number is a critical tax identifier used for federal tax filing, payroll processing, and other business activities. The EIN serves as a business’s Social Security number, enabling the IRS to track its financial obligations distinct from personal tax information.
Why Was the EIN Created?
As the business environment expanded in the early 20th century, the need arose for a systematic way to distinguish and track businesses for tax purposes. Just as individuals use Social Security numbers, the IRS implemented the EIN system to uniquely identify business entities, improving tax compliance, recordkeeping, and enforcement.
When Does a Business Need an EIN?
Businesses need an EIN in various situations, including but not limited to:
- Hiring Employees: An EIN is mandatory for reporting payroll taxes and withholding.
- Operating as a Corporation or Partnership: These business structures require an EIN for federal tax filings.
- Filing Employment, Excise, or Alcohol, Tobacco, and Firearms Tax Returns: Certain tax returns mandate an EIN.
- Withholding Taxes on Payments to Non-resident Aliens: An EIN is required for tax withholding.
- Operating Trusts, Estates, or Farmer’s Cooperatives: These entities must have an EIN.
- Opening Business Bank Accounts: Most banks require an EIN to separate business and personal finances.
- Applying for Business Licenses or Permits: Some regulatory bodies require an EIN.
Even sole proprietors or single-member LLCs without employees often obtain an EIN to separate personal and business finances, establish business credit, and simplify tax reporting.
How to Apply for an EIN
Applying for an EIN is free and can be done easily through the IRS website online, or by fax, mail, or phone for international applicants. Online applications typically receive the EIN immediately, while other methods may take several weeks. Remember, only the IRS provides EINs for free; third-party services may charge fees unnecessarily.
Practical Examples of EIN Use
- Hiring Employees: A small business owner hires staff and must report payroll taxes using an EIN.
- Forming Partnerships or Corporations: Business owners forming new entities must obtain an EIN for tax and banking purposes.
- Incorporation: A freelancer incorporating their business obtains an EIN to file corporate taxes and limit personal liability.
Protecting and Managing Your EIN
Treat your EIN like sensitive personal information. Avoid unnecessary sharing to prevent identity theft or fraud. Keep your IRS EIN confirmation letter safe as you will need your EIN for tax returns, business licenses, bank accounts, and loan applications. If your business structure changes legally (e.g., converts from sole proprietorship to corporation), a new EIN may be required. Always update the IRS with changes to your business name or address.
Common Myths and Clarifications
- Not Just for Employers: Even businesses without employees may need an EIN.
- Separate from State ID Numbers: Many states issue their own tax ID numbers distinct from the EIN.
- EIN is Not a Business License: An EIN identifies a business for tax purposes but does not replace required licenses or permits.
Frequently Asked Questions
How long does it take to get an EIN? Online applications are usually processed immediately; fax or mail submissions take up to several weeks.
Is there a fee to get an EIN? Receiving an EIN from the IRS is free.
Can sole proprietors get an EIN? Yes, while optional, many do for separating finances and future growth.
What if I lose my EIN? Find it on prior tax returns, IRS notices, or by contacting the IRS.
Do I need a new EIN if I move states? Usually not, unless your business structure changes.
Can one business have multiple EINs? Typically no; separate entities require distinct EINs.
For more on related topics, see our articles on Social Security Number (SSN) and Limited Liability Company (LLC).
Sources
- Internal Revenue Service. “Employer ID Numbers (EINs).” IRS.gov. Accessed June 2025. https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers
- IRS Publication 1635, Understanding your EIN (https://www.irs.gov/pub/irs-pdf/p1635.pdf)
For official and up-to-date information, visit the IRS website.
