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A Guide to Employer Identification Number (EIN): What You Need to Know

Last updated 04/09/2024 by

SuperMoney Team

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Summary:
An Employer Identification Number (EIN) is a unique nine-digit identification number assigned by the Internal Revenue Service (IRS) to businesses and organizations for tax purposes. Similar to how Social Security Numbers (SSNs) identify individuals, an EIN serves as a unique identifier for entities engaged in commercial activities.

What is EIN?

An Employer Identification Number (EIN) is a unique nine-digit identification number assigned by the Internal Revenue Service (IRS) to businesses and organizations for tax purposes. Think of it as a social security number (SSN) for your business. EINs are used by the IRS to identify and track the tax obligations of different entities.
Every business, regardless of its size or structure, needs an EIN if it meets certain criteria. Whether you’re a sole proprietorship, partnership, corporation, limited liability company (LLC), nonprofit organization, or any other type of business entity, an EIN is essential for proper identification and compliance.
The EIN is used by the IRS and other government agencies to track business activities, tax filings, and payments. It is also used by financial institutions, vendors, and other entities for various purposes, such as opening business bank accounts, applying for business loans, and reporting income.

How to apply for an EIN

Applying for an EIN is a straightforward process, and you have several options to choose from:
  1. Online Application: The easiest and quickest way to obtain an EIN is through the IRS website. Visit the “EIN Assistant” section and follow the step-by-step instructions to complete the online application.
  2. Mail or Fax Application: If you prefer not to apply online, you can fill out Form SS-4, Application for Employer Identification Number, and mail or fax it to the appropriate IRS address or fax number.
  3. Telephone Application: In certain cases, you can apply for an EIN by calling the IRS Business and Specialty Tax Line and providing the necessary information over the phone.
Regardless of the method you choose, you will need to provide basic details about your business, such as its legal name, physical address, type of entity, and responsible party information.

Uses of an EIN

An EIN has several important uses in the realm of business operations. Here are some key applications:
  1. Tax purposes: An EIN is crucial for filing tax returns, making tax payments, and communicating with the IRS regarding your business taxes. It is required for both federal and state tax obligations.
  2. Banking and financing: To open a business bank account or apply for business loans or credit, financial institutions typically require an EIN.
  3. Hiring employees: If your business plans to hire employees, an EIN is necessary for reporting employment taxes, issuing W-2 forms, and facilitating payroll operations.
  4. Business entity changes: When making significant changes to your business, such as converting from a sole proprietorship to a corporation, an EIN may be required.
  5. Partnerships and trusts: Partnerships, trusts, and certain other entities must have an EIN for tax reporting purposes.

EIN vs. social security number (SSN)

While an SSN identifies individuals for personal tax purposes, an EIN is specifically for businesses and organizations. Here are some distinctions between the two:
  • When an EIN is required: If you operate a business, have employees, or meet certain criteria outlined by the IRS, you’ll need an EIN. An SSN, on the other hand, is necessary for personal tax filings and identification.
  • Having both an EIN and an SSN: In some cases, individuals may need both an EIN and an SSN. For example, if you are a sole proprietor, you can use your SSN for business activities, but if you want to hire employees or form a partnership, you’ll need an EIN as well.

Maintaining an EIN

Once you have obtained an EIN, it’s essential to keep your information updated. If any changes occur, such as a business name change or address change, you should inform the IRS promptly to ensure accurate records. You can update your EIN details by submitting Form SS-4 or by contacting the IRS directly.

Closing an EIN

There may come a time when you need to close an EIN. This can happen if your business ceases operations, undergoes a change in structure, or if you no longer need the EIN for any other reason. Here’s what you need to know about closing an EIN:
  1. Notify the IRS: The first step is to notify the IRS about your intent to close the EIN. You can do this by sending a letter to the IRS office that assigned the EIN to your business. The letter should include your business name, EIN, the reason for closing the EIN, and the final tax return filing information, if applicable.
  2. Final tax returns: If your business was required to file tax returns, you must ensure that all outstanding tax returns are filed before closing the EIN. This includes filing any necessary employment tax returns, income tax returns, and information returns. Pay any outstanding taxes owed as well.
  3. Cancel business registrations: Depending on your business’s location and structure, you may need to cancel any state or local business registrations or licenses associated with the EIN. Contact the appropriate authorities to learn about the specific requirements for canceling business registrations.
  4. Notify other entities: If you have business accounts, licenses, permits, or contracts under the EIN, inform the respective parties about the closure of the EIN. This ensures that any associated accounts or agreements are properly closed or transferred to a new EIN, if necessary.

FAQ (frequently asked questions)

Who needs an EIN?

Businesses, organizations, and entities engaged in commercial activities, hiring employees, or meeting specific IRS requirements need an EIN.

How long does it take to receive an EIN?

If you apply online, you will receive your EIN immediately after completing the online application. For other methods, it typically takes several weeks to receive your EIN.

How can I verify the validity of an EIN?

You can verify an EIN’s validity by contacting the IRS Business and Specialty Tax Line or using the IRS’s “EIN Assistant” online tool.

Key takeaways

  • An Employer Identification Number (EIN) is a unique nine-digit identification number assigned by the IRS to businesses and organizations.
  • EINs are crucial for tax filings, opening business bank accounts, hiring employees, and various other business activities.
  • You can apply for an EIN online, by mail or fax, or through a telephone application.
  • An EIN is different from a Social Security Number (SSN) and is specifically for business identification purposes.
  • It’s important to maintain accurate EIN information and update the IRS when necessary.

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