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What is an EIN?
The EIN is short for Employer Identification Number and is the same thing as the FEIN or Federal Employer Identification Number. This is a unique 9 digit number that identifies business entities.
What is an EIN used for?
- Open a bank account – Banks need an EIN (or SSN if the EIN isn’t needed) before opening a business bank account.
- Apply for business licenses & permits – Most business licenses and permits will require the EIN (or SSN) before granting one.
- Filing tax returns – To file state and federal tax returns, the EIN is used to identify the business.
- Hiring employees – The EIN is the account number for the business to track employment taxes like payroll taxes, income tax withholdings, and unemployment.
Do I Need an EIN?
Not all businesses need an EIN! Only businesses that have employees operate as a partnership, corporation or Limited Liability Company (LLC) taxed as a corporation will need to get one. So as a sole proprietorship or a single-member LLC that don’t have employees, you may not be required to get one. In this instance, the business is identified by the owner’s Social Security Number (SSN).
How Much Does an EIN Cost?
Even though there are several companies that will charge you for an EIN, there is actually no cost to file for an EIN with the Internal Revenue Service (IRS). It’s pretty easy to do too.
Applying for An EIN
The easiest and fastest way to apply for an EIN is to visit the IRS site, between the hours of 7 am – 10 pm EST, Monday – Friday. It takes about 5 minutes to file and you will have a number within seconds. If applying online isn’t an option, you can apply by mail or fax by sending the SS-4 form. You can even get an EIN over the phone. If filing by phone, note that it isn’t a toll-free number.
Here is an instructional video on how to apply for an EIN.
What Information Do I Need To Get a Tax Identification Number?
Applying for an EIN is pretty straightforward, but you will need to obtain some information beforehand, such as:
- Business address
- Name of the principal officer, manager or owner
- If an LLC, the number of members
- Type of business and primary activity
- Date the business was started or acquired
- Closing month of the entity’s accounting year
- Number of employees expected to be hired
- Contact information
What’s the difference between a Tax ID Number and an EIN?
We get a lot of questions from people who get confused between the EIN and tax ID number/state sales tax registration. A business may need one or both depending on their business entity, their state requirements and what is being sold. The EIN is a number that is used to identify a business. As we saw earlier, some businesses need one, while others don’t. The tax ID number is usually a state requirement for businesses with employees or those that sell products. Oftentimes, this tax number is provided by the state’s Department of Revenue (or similar office). Each state is different, so be sure to check out our guide to starting a business in your state and see Step 5.
The EIN also doesn’t allow you to buy products at wholesale either. The ability to do so is through the Department of Revenue by applying for the state sales tax registration (sometimes called a resale certificate). In states that charge sales tax, the end-user of a product is the one who pays for the sales tax, not the people in between. The retailer charges sales tax to the customer and typically at the end of the month pays the state the amount of sales tax collected.
The EIN is also different than a business license. Many states don’t require a business license but are sure to check our guide to starting a business and see Step 5.
Do I need a new EIN for each business?
Each business should have its own EIN, but sole proprietors may only have one EIN, regardless of the number of businesses they own.
Does an LLC need an EIN?
Sometimes. Single-member LLCs that are registered as a disregarded entity will use the owner’s Social Security Number unless the business hires employees. LLCs set up to be taxed as a partnership or corporation will need an EIN.