An Employer Identification Number (EIN) is a nine-digit identifier that the Internal Revenue Service (IRS) assigns to individual businesses. It is a type of Tax Identification Number, or TIN, and it is used to identify businesses the same way that social security numbers are used to identify individual taxpayers.
The EIN application can be submitted online through the IRS website, and any business in the United States can qualify for one.
Does your business need an EIN?
Most businesses use an EIN, but it’s not required for every kind of company. If your business has any employees, operates as a corporation or partnership, files certain tax returns, or withholds taxes from income other than wages, then you need an EIN.
Different types of businesses will have different requirements—check this list to see if you’ll need to apply for your business.
- Sole proprietorships and limited liability companies (LLC) need this identification number if: they have employees; if they use a Keogh retirement plan; if they withhold non-wage taxes from non-resident aliens; or if they pay taxes for employees, firearms, alcohol, tobacco, or excise. In addition, an EIN will be required if the business is involved in any of the organizations listed by the IRS on this page.
- Partnerships are required to obtain an identification number.
- Corporations are required to obtain an identification number.
The benefits of an EIN
If you have a very small business without employees, you may not be required to obtain a business EIN for tax purposes, but it can still have a number of different benefits for your company. Because it is essentially a form of business identification, it can make some processes easier and more organized.
Prevent identity theft
If you are a freelancer or independent contractor, an EIN helps separate your personal finances from your business finances. However, you don’t have one, you may have to give out your social security number to clients and vendors for their tax documents, which increases your risk of identity theft. If you are able to provide an EIN instead, this allows you to keep your social security number to yourself.
In addition, your business will look more professional to your clients if you provide them with a business ID number instead of just your personal social security number. This number shows that you are serious about your company, and it’s not just a hobby or side gig.
Hire and pay employees
If you ever plan to have employees in your business, an EIN is essential. Even if you are the only person in your company at the moment, you may want to hire someone in the future. Consider whether it’s worth it to file for an EIN now so that you won’t have to worry about the process later on.
More loan opportunities
It is sometimes possible to apply for business loans without an EIN, but often banks will require this identification number for a loan. And even if the bank doesn’t explicitly require it for the loan, they will often require that you have a business checking account with them—and the checking account will likely require an EIN.
With an EIN, you can establish a business credit history. Business credit looks at your history of bill payments and overall financial responsibility, and building up your business credit score will make it easier to take out a loan or apply for a line of credit in the future. And for those who need a business credit card, keep in mind that an EIN will be required for many of these card options.
How to get an EIN
You can apply for an EIN from the IRS online. Before you start the application process, make sure you know (or decide) who is the primary owner of your business, because you’ll need that person’s social security number in order to apply.
Unlike a lot of other processes that can positively impact your business, applying for an EIN is completely free. If your application is denied, it’s usually because you submitted the form with an error; you can always fix the mistake and apply again.
Also, if the structure or ownership of your business ever changes substantively, you’ll also need to apply for a new EIN.
What happens if you lose your identification number?
If you forget your number or misplace the tax documents that include the number, you can contact the IRS and they will help you out.
The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided “as-is”; no representations are made that the content is error free.