As a business owner or sole proprietor, you may have heard the terms Federal Employer Identification Number (FEIN) and Employer Identification Number (EIN) used interchangeably. Being in the new business world, it’s perfectly reasonable to ask yourself, “is a FEIN and an EIN the same?”.
As far as their functionality is concerned, there is no difference between a FEIN vs EIN. They refer to the same 9-digit number issued to you by the IRS to identify businesses for tax purposes.
What is an EIN?
Anyone who is looking to employ someone to work for their business will need an Employer Identification Number (EIN). This is a 9-digit number given to employers by the IRS which helps them determine your tax status and helps you keep your business and personal expenses separate. If someone asks for your state tax number, this is the number they are referring to. It also helps the IRS understand the nature of your business, given that you have to stipulate which industry your business operates within.
What is a FEIN?
A FEIN is your Federal Tax Identification Number also issued to you by the IRS which allows you to file for payroll and make the necessary tax payments associated with your business. Your FEIN is used by the IRS to identify you as an active or potential employer in a similar way to how they identify individuals using the Social Security Number system.
Who needs an EIN and what are they used for?
If you want to open up a business bank account or apply for a business credit card, organizations that provide these services will ask for your EIN upon application. This will help them accurately keep track of tax reporting for your business.
If you have a business where sales tax applies, you will also have to have an EIN number specifically so that the state can implement their tax laws and make sure you are adhering to their criteria. In some states, tax laws can differ from federal laws. Your state-specific tax ID number therefore makes
Who needs a FEIN and what are they used for?
The rule of thumb is that you will need a FEIN if you are operating a business that takes on employees. However, whether or not you need a FEIN depends more on the title under which your business operates.
It is mandatory for you to have a FEIN if your business is classified as a Partnership, Corporation, or LLC, regardless of whether or not you have anyone under your employment. This is because companies with these titles have different tax laws that apply to them and therefore need to be recorded correctly. Let’s examine the individual entities and why they need a FEIN.
Sole Proprietors
Although sole proprietors typically do not have employees, there are many benefits to obtaining an EIN or a FEIN. This is predominantly done so that those who are running their own company and working for themselves can keep their personal and business expenses and tax reports separate. This helps greatly when submitting tax returns as it prevents any overlap between the two. There are also more tax breaks available to businesses for things like company assets and expense write-offs.
Corporations
It is mandatory for incorporated companies to file for tax, and they need to specify in which capacity they qualify as a corporation. There are two options, namely C Corporations and S Corporations. The IRS will tax these companies differently, so having an EIN is so important. Your FEIN vs EIN will allow the IRS to charge you the right amount of tax, regardless of your status as an employer.
LLC’s
Limited Liability Companies (LLCs) with two or more owners require an EIN for the IRS to track your business’s tax obligations. However, if you run an LLC as the only owner, the IRS will disregard your status as an LLC. This means that all of your company’s income, deductions, and losses will need to be reported using your own federal income tax return, which can probably be tracked using your SSN or TIN. LLC companies will, however, still need to apply for a FEIN during initial establishment.
Difference between a FEIN and Tax ID Number
When asked for your FEIN or your tax identification number (TIN), you need to be aware of when the two are interchangeable. Both numbers serve the purpose of assisting the IRS with correctly identifying your company when you file a corporate tax report or return.
The easiest way to understand when you can use either your FEIN or your TIN is to look at what is being asked for. If the document or person of authority asks for your EIN, then you can supply your FEIN or your TIN.
However, if you are being asked for your TIN specifically, then this is exactly what you must supply. You cannot supply your FEIN in place of your TIN. This is because your TIN usually refers to your Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), or your Employer Identification Number (EIN). Therefore, you cannot use your FEIN as you may need to supply information relating to your personal tax status, and it won’t always relate to your business.
Does my business need an EIN vs FEIN?
If you are offering products or services as an operating business, you will need a FEIN. If the state asks for a tax ID number or federal tax ID number, you may need to have a separate EIN over and above your FEIN. However, in most cases, your FEIN or EIN are the same numbers.
The only major difference between a FEIN and an EIN is the context in which they are referred to. Essentially, when someone refers to an EIN when they mean a tax identification number, an EIN would be the tax ID number you use for state tax whereas a FEIN is used for national tax purposes. While a state ID number is an actual thing in some states. The terms FEIN & EIN are essentially synonymous. They’re the same thing and used interchangeably in the industry.
If you work for yourself, it’s not as vital to have an EIN or FEIN as long as you do not take on employees. However, having an EIN or FEIN has many benefits which can help you with your personal and business expenses, income, and tax.
How do I get an EIN or FEIN?
The great thing about applying for an EIN or a FEIN is that the process is very simple. There are some companies that will charge you for acquiring an EIN number however it’s advised that you do this yourself, as the process should not take longer than 20 minutes.
You can get your EIN or your FEIN by visiting the IRS website and submitting an application online. You will be able to access your EIN or your FEIN immediately. You will need to provide your company’s name, legally registered address as well as information about the industry in which your business operates.