What the heck is an EIN, and do I need one?

If you’re launching a new business or reorganizing your established business, you’ll probably need an EIN, or an employer identification number assigned by the IRS. Learn how to apply for this number and how it can help you manage business tax and other business finances.

When you want to build a business that lasts, starting with a strong foundation is vital. A restaurant may need to identify standout flavors and an attractive location, and a shop that sells custom t-shirts may prioritize acquiring the right equipment to create unique designs.

Regardless of business type, there is often a mountain of paperwork and filings needed to register a new company or restructure an established business. On your business launch checklist, one task you should tackle early on is obtaining an Employer Identification Number, or EIN, from the IRS.

What is an employer identification number?

An employer identification number is commonly referred to by the acronym EIN. It’s also sometimes called a federal employer identification number or FEIN, or you may hear it referred to as a TIN, a federal tax identification number. Simply put, an EIN is a nine-digit number used by the IRS to identify your business as a unique entity. 

It’s a little like a social security number for your business; you’ll use your EIN the same way you’d use a social security number on a personal tax return. If your company requires an EIN, it’s best to get one as soon as you open your business.

Is an EIN only for taxes?

One of the most obvious advantages of having an EIN is using the number when you file your business taxes. But having an EIN and managing tax deadlines can also help you streamline filing your taxes and avoid penalties for filing a late return. 

An EIN can also help you establish credibility as a business, proving to potential clients and vendors that you’re an established independent contractor. Also, for certain itemized deductions, such as a home office, your chances of facing an audit decrease if you have an EIN.

Outside of filing your taxes, an EIN can be used for other functions, such as registering as a business entity, applying for a business loan, opening a business bank account, and getting appropriate licenses. Separating your personal finances from business finances also keeps your social security number private, which helps to prevent identity theft. 

An EIN can also help you manage business finances beyond your taxes because having an EIN can streamline a loan application by allowing lenders to quickly verify your business’s financial health, credit history, and established accounts.

Does my business need an EIN?

So does your business need an EIN? If any of the following apply to you or your business, the IRS states that you must get an EIN for tax purposes: 

Your company has employees

No matter how your business is structured, you’ll need an EIN if you have employees. But how does the IRS define an employee? Generally speaking, someone is considered an employee if they complete work for your business and you can instruct what tasks will be done and how they’ll be done.

Your business isn’t a sole proprietorship or single-member LLC

If your business isn’t a sole proprietorship, you’ll probably need an EIN, as the IRS requires all business entities to use one. If you form or restructure your business as a partnership, corporation, or multi-member LLC, you’ll need to apply for an EIN.

You bought or inherited your business

If you buy or inherit a business, you’ll need to apply for an EIN, as the previous owner’s EIN cannot be transferred to you. A change in ownership, regardless of reason, typically requires a new EIN. 

You’ll also have to file for a new EIN if you restructure your business or bring in a new partner. Other changes, like adding a new location or changing the name of your business, don’t require a new EIN.

You have a solo 401(k) or  HR-10 retirement plan

A solo 401(k) or HR-10 plan, commonly called a Keogh plan before 2001, is a tax-deferred retirement plan for self-employed entrepreneurs or unincorporated businesses. These plans are similar to traditional 401(k) plans, but the annual contribution limits are usually higher, and administrative costs can be more expensive. 

Other options for retirement planning, like Simplified Employee Pensions (SEP-IRAs), may not require an EIN from a legal standpoint. Still, many brokers and financial institutions need an EIN to establish the account.

You file for bankruptcy

If you need to file for bankruptcy with a gross income of at least $12,550, you’ll need an EIN, which is what a trustee or debtor-in-possession can use to file tax returns for the bankruptcy estate. The IRS does not allow individual debtors to use their social security numbers for these filings. 

You’re affiliated with certain organizations or file certain tax returns

According to the IRS, if you or your business are affiliated with the administration of any of the following types of accounts, you’ll need an EIN:

• Estates 
• Real estate mortgage investment conduits 
• Non-profit organizations 
• Farmers' cooperatives 
• Trusts 

While administering a trust often means you’ll need an EIN, there are exceptions for certain grantor-owned revocable trusts, IRAs, and exempt organization business income tax returns. 

You’ll also need an EIN to file any of the following types of tax returns:

• Employment
• Excise
• Alcohol, Tobacco, and Firearms

If you’re still unsure, the IRS has a questionnaire to help you determine if you need an EIN. 

How do I get an EIN if I need one?

The easiest and most recommended way to apply for an EIN is to use the online portal on the IRS website. The process can’t be saved once you begin and will timeout after 15 minutes of inactivity, so you’ll want to have all the needed information before starting the application: the applicant’s social security number, the business address, and the business’s founding date.

If you prefer, you can apply by using Form SS-4. This form can be faxed or mailed to the service center's address.

If you use an online application, you’ll receive a number instantly. For an application sent by fax, your EIN certificate will be mailed approximately two weeks after your application is received. Allow four to five weeks for a mailed application. 

Once you’ve obtained an EIN from the IRS, you can start using it immediately. Your EIN won’t expire, and as long as the structure and ownership of your business remain the same, you probably don’t need a new EIN.

If you ever lose, forget, or misplace your EIN, there’s no need to panic. Even if you can’t locate the number on old tax documents, you can contact the IRS for assistance. 

Apply for EIN today

An EIN can be vital to your business, even beyond the apparent function of business tax reporting. This number will also prevent delays in making payments or filing your year-end taxes. To easily keep track of these deadlines, you can use tools like ComplYant, and set your business off on the right foot to manage your business taxes.