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What Is An EIN?

What Is An EIN?

The United States Internal Revenue Service provides Employer Identification Numbers, or EINs, to businesses. This unique nine-digit number is like the Social Security numbers that are provided to Americans at birth, which, in some cases, can also be used instead of an EIN. The IRS uses this federal tax identification number to track income and taxes for business entities. For those who are not Americans or who are new to running a business, EINs might seem confusing. Fortunately, it’s more straightforward than it seems.

What Is an EIN Used For?

The various uses of EINs show how they are both useful and sometimes necessary for anyone who does business in the U.S. However, some of those uses happen only rarely.

  • Opening Business Bank Accounts – most banks ask for an EIN when you open your business bank account. Your EIN is also used for your business credit card. If you are a sole proprietor, you can use your Social Security Number (SSN) for your business bank account instead of an EIN.
  • Hiring Employees – before you hire employees, you must obtain an EIN. The IRS uses this number for tracking your payroll tax remittances.
  • Filing Business Tax Returns – Businesses need EINs if they are required to file excise tax returns and other types of returns like firearms, tobacco, alcohol, etc.
  • Signing Contracts – Freelancers may use EINs to sign contracts to protect their Social Security Numbers. Some companies may require EINs instead of SSNs.
  • Communicating with the IRS – your EIN is used when communicating about tax returns, including making payments, receiving refunds, or filing disputes.

What Types Of Businesses Need An EIN?

The vast majority of business entities, including tax-exempt ones, require EINs.

Nonprofit Organizations

Even though nonprofits are exempt from paying taxes, they are still required to have an EIN to hire employees, open a business account, and report their income.

Partnerships and Corporations

Any company, including small businesses and any member LLC that operates in the United States and meets these requirements, needs an employer identification number.

  • If you employ others
  • If your business is a corporation or partnership
  • If you file tax returns for employment, excise, alcohol, tobacco, or firearms.
  • If you withhold taxes on income — in addition to wages — for non-resident aliens.

Self-Employed Individuals

If you are self-employed and participate in a Keogh retirement plan, you will need an EIN. If you’re an American, you might also feel more secure providing an EIN to business associates instead of your Social Security number to thwart identity theft, even if you’re a sole proprietorship that doesn’t legally require an EIN.

Other Organizations and Businesses

Those involved in trusts, estates, real estate mortgage investment conduits, and farmer’s cooperatives also require an EIN. Even if you do not see your type of business on this list, you may need an EIN.

Do EINs Differ From State To State?

Because the IRS issues your EIN, a department of the federal government, it remains the same no matter which state you operate in. However, some states issue businesses an additional employer identification number for state taxes, so you must know if a state uses its own EIN system if your business moves or expands.

Applying For A New EIN

Fortunately, registering for an employer identification number is relatively simple and always free, even if you have an existing business. However, you will need a new EIN when changing your business structure to add partners, incorporate, merge, or become a subsidiary.

If your business is in a U.S. state or territory and already has a Taxpayer Identification number such as a Social Security, Employer Identification, or Individual Taxpayer Identification Number, you can complete your EIN application online and receive your EIN immediately after submitting IRS Form SS-4. Note that the Internal Revenue Service only allows one person who controls the business to apply per day. Mail and fax options are also available to Americans.

International applicants must complete the process over the phone. Applicants must answer questions similar to those on the Form SS-4 on the IRS website. You can also name a third-party designee to receive your employer identification number and answers to questions on contracts while waiting for your EIN. This is useful if you have an existing business and need to provide your EIN to a company you plan to work with.

Other Terms For Federal Tax ID Numbers

EINs are just one type of Taxpayer Identification Number (TIN). Some people refer to this category as Federal Employer Identification Numbers (FEINs), including the following subtypes.

  • Social Security numbers (SSNs) – used by individuals for tax and other identification purposes.
  • Individual Taxpayer Identification Number (ITIN) – a type of TIN required to process taxes if you are a nonresident alien (or a dependent of one) who cannot get a Social Security Number. Certain resident aliens and their dependents may need an ITIN.
  •  Adoption Taxpayer Identification Number (ATIN) – temporarily provided to people in the process of adopting a child that is a citizen or resident of the United States.
  • Preparer Tax Identification Number – used by paid tax preparers to identify themselves on tax returns.

Using An EIN Lookup Service

If you need to find your own EIN, you can contact the IRS. You can also find EINs of publicly traded companies through the Securities and Exchange Commission’s EDGAR system or look up a nonprofit’s EIN via Guidestar. However, for private businesses, you may need to use an EIN lookup service such as FEINsearch to find the company’s EIN.

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