Takeaways
- Employer Identification Numbers (EIN) allow the IRS to track your business.
- Companies can apply for an EIN with the IRS online, by fax, or by mail.
- Before applying for an EIN, you must form your business entity with your state.
- Businesses hiring employees need an EIN to distribute tax forms to employees.
- EINs allow your business to get access to bank accounts, credit cards, and other financing opportunities.
What Is an Employer Identification Number?
An Employer Identification Number (EIN), or Federal Employer Identification Number, is a unique nine-digit number assigned to businesses by the Internal Revenue Service (IRS).[1] Think of your EIN as the business's equivalent of your Social Security Number.
Your business's employer identification number serves as a crucial identifier for your business entity, allowing it to interact with the IRS and other government agencies and conduct regular business operations.
Essentially, your EIN acts as your business's official identification number for tax purposes. It's how the IRS recognizes your business for tax filings, such as employment taxes, corporate income taxes, and other business-related taxes. Just like your Social Security Number is used to track your federal income tax obligations, your EIN tracks your business's activities.
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Business Needs for an EIN
- Filing Employment Taxes: Businesses with employees must use their EIN to file employment taxes, including income tax, Social Security tax, and Medicare tax withheld from employee wages, as well as employer contributions to these taxes. (Read more about how to file your taxes).
- Opening a Business Bank Account: Most banks require an EIN to open a business bank account. Your EIN allows the bank to identify and track your business transactions accurately. (Read more about the best checking accounts).
- Filing Business Taxes: Depending on your business structure, you may be required to file various business taxes, such as corporate income tax, partnership tax, or estate and trust income tax. An EIN is essential for filing these taxes and interacting with the IRS regarding your business's tax obligations. (Read more about how a trust works).
- Securing Business Licenses and Permits: Many local and state governments require an EIN as a precursor to obtaining specific business licenses and permits. These may include licenses for operating a business, selling specific products or services, or conducting business in a particular location. (Read about 5 Great Business Ideas).
- Maintaining Government Contracts: If your business works and holds federal contacts with a federal, state, or local agency, then you need an EIN. Having your business EIN is a requisite step to securing government contracts.
Smart Tip:
The Internal Revenue only allows you to apply for one EIN per day
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When to Apply for an EIN
Most businesses need to get an EIN to start regular business operations. Your business definitely needs to apply for an EIN if you:
- Hire Employees: If you want to hire employees, you need to get an EIN to file employment taxes. For example, tax documents like Form W-4 list your business’s EIN.
- Operate as a Corporation, Partnership, Estate, or Trust: Even if you do not have employees yet, you may need an EIN to operate as a corporation, partnership, estate, trust, or other legal entity. (Read more about how partnerships work).
- File Business Taxes: If your business is required to file certain business taxes, such as corporate income tax or partnership tax, you will need an EIN. (Read about the 9 Steps to Start Your Online Business).
- Need to Open a Business Bank Account: Most banks require an EIN to open a business bank account. Getting your business’s bank account up and running is critical for accepting client checks, paying vendors, and maintaining your financial statements. (Read about when to get a business bank account).
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7 Steps to Apply to an EIN
Applying for an employer identification number requires following a specific order of events, which the IRS outlines. Here’s how to apply for your EIN:
1. Go to the IRS Website: Visit the official IRS website (irs.gov) to access the online application for an EIN. The online application is the fastest and easiest method for obtaining an EIN.
2. Select Your Business Structure: You can choose the legal structure of your business from the available options, such as sole proprietorship, partnership, corporation (S Corporation or C Corporation, LLC), or other entity.
3. Give Reason for Applying: Indicate the primary reason for applying for an EIN, such as hiring employees, filing taxes, or opening a business bank account.
4. Select a Contact Person: Choose a contact person within your business responsible for receiving the EIN and managing tax-related matters. This person will be the primary contact for the IRS regarding your business.
5. Provide Business Location: Enter your business's physical location, including the street address, city, state, and zip code. If your business operates from a home address, you may be able to use a P.O. Box or a general delivery address for privacy.
6. Give Legal and Trade Name:
- Legal Name: Enter the legal name of your business as it appears on legal documents, such as your articles of incorporation or partnership agreements.
- Trade Name: If your business operates under a trade name (also known as a "doing business as" or "DBA" name), enter that name as well.
7. Describe Your Business Purpose: Briefly describe your business's purpose and activities. Your business description can include information about your products or services, target market, and regular business operations.
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Applying Online:
The online application process is typically the quickest and most efficient. After completing your application, you will receive your EIN immediately.
Applying by Mail or Fax:
You can also apply for an employer identification number by mail or fax. However, using this application method will take the IRS longer to process. You can find the forms you need to apply by mail or fax on the IRS website.
Smart Summary
An employer identification number is a unique nine-digit number issued by the IRS to new businesses. Getting your EIN is an essential step in getting your businesses up and running because it allows you to comply with tax regulations, open business bank accounts, and start operating. You can quickly get the EIN you need by following the steps above. Once you have your EIN in hand, you can switch your focus to growing a highly profitable business.
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(1) Internal Revenue Service. Get an employer identification number. Last Accessed January 28, 2025.
