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EIN (Employer Identification Number)

Introduction

Are you looking into starting a new business? Thousands of businesses are started each year in the United States alone. In order to properly start a business, you’ll likely have to obtain an Employer Identification Number, EIN for short (also referred to as a Tax Identification Number or Federal Employer Identification Number, FEIN). An EIN identifies a business for federal tax purposes. Think of an EIN as the Social Security Number of a business.

The Internal Revenue Service (IRS) requires most new business to obtain an EIN in order to identify the tax accounts of your business and pay federal employee withholding taxes. If you fail to obtain an EIN, you can face some steep penalties by the IRS.

In this article, we’ll go over what an EIN is, how to obtain an EIN, and some additional considerations.

Next, we’ll go over what an EIN is, and define it in terms that we can all understand.

What is an EIN?

An Employer Identification Number, called EIN for short, is a nine-digit number that the IRS assigns in the format: XX-XXXXXXX. An EIN is used to identify the tax accounts of employers (and certain other businesses with no employees) and to pay federal employee withholding taxes.

If you will have employees, you need to obtain an EIN. If you are required to report employment taxes or give tax statements to employees, you need to obtain an EIN. In short, if you even remotely think you’ll have employees sometime in the future, you should likely obtain an EIN (because you’ll have to get an EIN once you do have employees). However, if you plan on operating as a sole proprietor or partnership without any employees, you don’t need an EIN to start your business. However, situations may arise in the future in which sole proprietors and partnerships would need an EIN even without employees (which we’ll discuss on the next page).

EINs are used by just about every type of business, organization and agency, including:

sole proprietorships
partnerships
limited liability companies (LLCs)
corporations
non-profit associations
trusts
estates of decedents
government agencies
certain individuals and other business entities

As you can see just about every type of business, agency, and organization uses an EIN. Therefore, it behooves you to obtain an EIN if you are starting a new business. While there are limited situations where an EIN is not required, it is generally better to err on the side of caution and obtain an EIN (plus the process to obtain an EIN is free, as we’ll discuss later).

Additionally, you should only obtain one (1) EIN for your business. If you have more than one EIN and are not sure which one to use, call the IRS’s Business and Specialty Tax Line at 1-800-829-4933 (TTY/TDD users can call 1-800-829-4059).

NOTE: Do NOT use an EIN in place of your social security number. EINs are for business purposes only!

Next, we’ll go over how EINs work for different types of business structures including sole proprietorships, partnerships, corporations, limited liability companies, and other forms.

EINs and Different Business Structures

Rule 1: If you plan on hiring any employees as part of a new business (or at some point actually hire employees), you need to obtain an EIN no matter what business structure you choose.

Rule 2: If you chose to operate your business without any employees (e.g. sole proprietorship or partnership), you may still need to obtain a new EIN if certain situations occur.

Depending on the business structure that you choose, different rules will apply when you may need a new EIN. Here, we’ll go over situations that deal with Rule 2.

Sole Proprietorships:

If you operate as a sole proprietor without an EIN, you will need an EIN if any of the following are true:

You file bankruptcy under Chapter 7 (liquidation) or Chapter 11 (reorganization) of the Bankruptcy Code
You incorporate your business
You are a sole proprietor and take in partners and operate as a partnership
You establish a pension, profit sharing, or retirement plan

You will not need a new EIN as a sole proprietor, if any of the following are true:

You simply change the name of your business
You only change your location or add locations (e.g. stores, plants, enterprises or branches of the business)
You operate multiple stores, plants or branches of the same business

NOTE: If you are a sole proprietor who conducts business as a limited liability company (LLC), you do not need a separate EIN for the LLC, unless you are required to file employment or excise tax returns. An LLC owned by one individual is automatically treated as a sole proprietorship for federal income tax purposes. Report the business activities of the LLC on Form 1040 using a Schedule C, Schedule C-EZ or Schedule F. You can find this information at www.irs.gov.

Partnerships:

If you operate as a partnership without an EIN, you will need an EIN if any of the following are true:

You incorporate your business
One partner takes over and operates as a sole proprietorship
The partnership is "terminated" and a new partnership is begun.

What is considered "termination" can vary depending on the facts, but if you close the partnership for good and cease all operations you will have likely "terminated" the partnership.

You will not need an EIN if:

The partnership declares bankruptcy. (However, if a liquidating trust is established for a partnership that is in bankruptcy, an EIN for that trust is required. You can review Treasury Reg. § 301.7701-4(d) for more details.)
The partnership name changes
The location of the partnership changes or new locations are added
The partnership "terminates"

The IRS generally considers a partnership as terminated if within a 12-month period there is a sale or exchange of at least 50% of the total interest in partnership capital and profits to another partner. However, if the purchaser and remaining partners immediately contribute the properties to a new partnership, they can retain the old partnership EIN.

Corporations:

You will need a new EIN if any of the following are true:

You are a subsidiary of a corporation and currently use the parent’s corporate EIN
You become a subsidiary of a corporation
The corporation becomes a partnership or a sole proprietorship
You create a new corporation after a statutory merger
You receive a new corporate charter

You will not need a new EIN as a corporation, if any of the following are true:

You are simply a division of a corporation
After a corporate merger, the surviving corporation uses its existing EIN
The corporation declares bankruptcy. (However, if a liquidating trust is established for a corporation that is in bankruptcy, an EIN for that trust is required. See Treasury Reg. § 301.7701-4(d)).
Your business name changes
You change your location or add locations (e.g. stores, plants, enterprises or branches)
You elect to be taxed as an S Corporation by filing Form 2553, instead of a C Corporation
After a corporate reorganization, you only change your identity, form, or place of organization
The corporation is sold and the assets, liabilities and charters are obtained by a buyer

Limited Liability Companies (LLCs):

If you operate as an LLC, you can elect to have the member(s) taxed as individuals (like in sole proprietorships or partnerships) or as a corporation. Depending on how you set up your LLC, and whether your LLC is just you, i.e. one member, or you have multiple members, will vary how and when an EIN may be required.

With that said, it is generally best to obtain an EIN when setting up an LLC (as mentioned throughout this article).

Estates, Trusts, Employee Plans and Exempt Organizations

Estates, trusts, employee plans, and exempt organizations may require an EIN under certain situations. An estate is a legal entity that holds the real and/or personal property of a person after his or her death. A trust is a legal entity created for a trustee to take legal title to property in order to protect and/or distribute the property to beneficiaries named in the trust. An employee plan is generally an arrangement where an employer provides retirement and/or health benefits for its employees. An exempt organization is a non-profit organization that is granted federal tax exempt status by the IRS.

We’re not going to go into the details of estates, trusts, employee plans, and exempt organizations in this article, but be aware that EIN issues may arise with them as well.

For further details on EINs, including limited liability companies, trusts, estates, employee plans, and exempt organizations please refer to the IRS’s Publication 1635 "Understanding Your EIN".

Next, we’ll discuss how to apply for your business’s EIN.

How to Apply for an EIN

As stated throughout this article, it is generally best to obtain an EIN when you start a new business (even if you’re not sure you’ll absolutely need it). Plus, the process to obtain a new EIN is quick, easy, and best of all, free! You can apply for an EIN with the IRS online, or by phone, fax, or mail.

How to Apply Online

Applying online is the preferred way to obtain your EIN, and the quickest way. Go to the IRS’s website at: www.irs.gov and type "EIN" in the search box. You’ll be able to submit all the information on the IRS’s website. Make sure to have your business information readily available, like its name, address, etc. Then, just follow the online instructions and upon completion of the application you’ll receive a new EIN instantaneously.

Upon last check with at IRS’s website, the online application process is available during the following hours:

Monday - Friday 6:00 a.m. to 12:30 a.m. Eastern Standard Time
Saturday 6:00 a.m. to 9:00 p.m. Eastern Standard Time
Sunday 7:00 p.m. to 12:00 a.m. Eastern Standard Time

BE AWARE: There may be scams on the internet that try to charge you for you EIN! AVOID any websites on the Internet that charge money for an EIN, as it is free to obtain a new EIN from the IRS.

NOTE: The online application is available for all businesses whose principal place of business, office or agency, or legal residence (in the case of an individual), is located in the United States or U.S. Territories. Additionally, the principal business officer, partner, owner or otherwise must have a valid Taxpayer Identification Number (e.g. Social Security Number, Employer Identification Number, or Individual Taxpayer Identification Number) in order to use the online application.

How to Apply by Phone, Fax or Mail

You can call the IRS at its Toll-Free EIN number 1-800-829-4933 between 7 a.m. and 10 p.m. local time, Monday through Friday (excluding federal holidays). You’ll have to be the authorized person of the business to complete the EIN application process.

Applications submitted by mail will be processed within 4 to 6 weeks. Applications submitted by fax will be processed within 4 business days. You can check online or call the IRS for the most current mailing or fax addresses.

Finally, we’ll wrap up this article with some main concepts to keep in mind.

Conclusion

If you plan to start a new business, one of your first steps should be to obtain an Employer Identification Number (EIN). The EIN acts like a Social Security Number for businesses. You’ll have to use your EIN for all of the items that you send to the IRS and the Social Security Administration (SSA). Additionally, most banks require an EIN in order for you to set up a business bank account.

Now that you have a better idea about how EINs work, the quickest way to obtain your new business’s EIN is to apply online at IRS’s website: www.irs.gov. Make sure you have all your business’s information readily available to fill out the online form. You’ll receive a new EIN instantaneously upon completing the application, and the process is free.