- An employer identification number (EIN) is assigned to a business by the IRS.
- EINs serve a similar purpose as Social Security numbers for individuals.
- Sole proprietors aren't required to get an EIN, but having one can still be useful for them.
The Internal Revenue Service uses a system of taxpayer identification numbers to recognize individuals and businesses that pay taxes and file returns. An employer identification number (EIN) is assigned to business entities as well as estates and trusts with federal filing requirements.
Understanding the basics of an EIN
Definition of an EIN and its purpose
An EIN is a unique nine-digit number issued by the IRS that identifies businesses for tax purposes. It is one type of federal tax identification number. It serves a similar purpose as a Social Security number (SSN) for an individual.
Most businesses are required to get an EIN, which is free and can usually be obtained the same day you apply for one on the IRS website.
Who needs an EIN?
An EIN is mandatory for most businesses, and optional for others. Businesses that meet any of the following conditions must have one:
- Has employees (including household employees)
- Operates as a corporation or partnership
- Has a Keogh plan
- Administers an estate or trust
- Files tax returns for employment, excise, or alcohol, tobacco and firearms.
- Withholds taxes on income paid to a nonresident alien
- Is involved with nonprofit organizations, farmers' cooperatives, real estate mortgage investment conduits, or plan administrators
Businesses that don't need an EIN are those that are not required by the IRS to file taxes separately from their personal income taxes. These businesses also must not meet any of the conditions listed above. A self-employed individual acting as a sole proprietor who doesn't pay employees, for example, does not necessarily need an EIN. This could be someone who has a side gig selling things through payment apps that report to the IRS, like Venmo, for example.
"However, it may still be a good idea for a sole proprietor who doesn't need to get an EIN to obtain one anyway, especially since doing so is free and easy on the IRS website," says Logan Allec, a certified public accountant and founder of the personal finance site Money Done Right.
Why an EIN is important for businesses
Tax benefits of having an EIN
An EIN can make filing taxes easier as a business owner or self-employed worker.
"For example, having an EIN for your business will allow you to use your EIN rather than your Social Security number when filling out Forms W-4 and W-9," Allec says.
In general, an EIN can help you protect against identity theft because you can use it instead of your SSN on official documents.
Legal and operational advantages
Business owners can also use EINs to keep personal and business finances separate. You won't have to share your SSN with customers or clients for business purposes.
"Having an EIN can also help with being approved for a business bank account or getting a loan for your business," Allec says. And an EIN can also help protect your personal credit score.
How to apply for an EIN
Steps to apply for an EIN online
Getting an EIN is a quick and easy process, particularly for online applicants. Any business located in the U.S. or U.S. territories can qualify if the applicant has a SSN or other taxpayer identification number.
You'll answer questions on the IRS website about your business. The EIN is issued immediately after the information is validated online.
Before you start, you'll want to make sure you have your business information handy. The IRS asks for:
- Business details, such as name and address
- The name of the principal owner or controller of the business.
- Taxpayer identification number (TIN) of the responsible party. For most people, this is their Social Security number.
- Type of entity (sole proprietor, partnership, corporation, etc.)
- Date the business started or was acquired
- Highest number of employees expected in the next 12 months
- Reason for applying for an EIN
- Principal activity or line of merchandise for the business
- Whether or not the entity has applied for an EIN before
Quick tip: Watch out for websites that charge to obtain an EIN. This is a free service from the IRS, and you do not need to pay to obtain an EIN.
Alternatives: Applying via fax, mail, or phone
You can also apply for an EIN by filling out Form SS-4. The form is a single page and can be mailed or faxed to the IRS.
International applicants can call the IRS directly at 267-941-1099 with questions about Form SS-4.
Professionals who provide financial services, such as an accountant or banker, may be able to apply for an EIN on your behalf.
EIN uses beyond tax purposes
If your business already has an EIN, there are some scenarios when you may need to file for a new one. In general, if your business has changed ownership or if your business has changed its structure, you will need a new EIN.
Some examples of when you will need a new EIN include:
- A sole proprietor incorporates or takes on a new partner
- A sole proprietor or partnership buys or inherits a business
- A corporation is created after a merger
- A corporation receives a new charter from the secretary of state
- A corporation changes to a partnership or sole proprietorship
- A partnership is ended
Your business doesn't need a new EIN under the following circumstances:
- The business has changed its name (although you will want to inform the IRS of the name change)
- You change your business location
- You run several businesses
- A corporate reorganization only changes the identity or business location
- If you're a division of a corporation
An EIN is a requirement for most businesses. However, you might want to consider getting one even if you don't need to. There's no cost involved, and it can help you in any number of circumstances where you can use it instead of your SSN.
FAQs about EIN numbers
Yes, an EIN is the same as a tax ID; specifically, it's a federal tax ID for businesses. It's not the same as a Social Security number or an individual taxpayer identification number, which is assigned to people who can't get SSNs.
You may be able to use your Social Security number instead of an EIN if you're self-employed and have no employees. However, obtaining an EIN may offer more security for your financial and business information.
No, EINs do not expire. They are permanent.
It doesn't take long to get an EIN; EINs are generated immediately when you apply online.
Yes, you can apply for an EIN for free. Applying for an EIN is always free through the IRS. Avoid websites that charge you for an EIN.
