What is an employer identification number?

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In a Nutshell

Much like the way that government assigns individuals Social Security or taxpayer ID numbers, the IRS assigns businesses identification numbers, known as “employer identification numbers” or EINs. But EINs are important to businesses for a lot more than taxes.
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An employer identification number, or EIN, is a tax identification number assigned by the IRS to small businesses, corporations and other types of business entities for tax purposes.

But EINs are used for many purposes beyond taxes as well, including opening business bank accounts and applying for business credit.

If you don’t have an EIN or don’t know if you should apply for one, consider the type of business you have. Based on your situation, you may need one to file your tax returns, pay employees or handle your finances.

Read more to learn why an employer identification number is important, whether you need one or not, and how to apply.



Who needs an employer identification number?

The IRS uses your EIN to identify your business for tax administration purposes. Your small business can use an EIN to do any of the following:

  • Pay federal taxes
  • Pay your employees
  • Open a business checking account
  • Apply for business licenses and permits
  • Build business credit

Some business entities, such as sole proprietors or self-employed individuals, may not be required to have an EIN. But some choose to get one anyway, to help protect themselves against identity theft or to identify as an independent contractor while working for pay.

For the purposes of building business credit, having an EIN is important because business credit-reporting bureaus can use it to report your business activities and payments.

FAST FACT

Do I need both state and federal EINs?

On top of your federal EIN, you may need a state tax identification number for the state you’re doing business in. While EINs (also known as federal employer identification numbers) are issued by the IRS, state tax ID numbers are issued by various state agencies, depending on the state where you operate.  To determine if you need a state tax ID, visit your state government website.

How can I get an employer identification number?

You can get an employer identification number in one of several ways.

  • Mailing or faxing a completed EIN application, Form SS-4, to the IRS
  • Online using the EIN assistant
  • By telephone, if you’re an international applicant

EIN’s are free, and the easiest way to get one is to apply online using the EIN Assistant at IRS.gov. The online assistant only takes a few minutes and you’ll need to complete it in one sitting because you can’t save your info and finish later.

You will receive your new EIN immediately after you submit your application. You can only apply for one EIN per day online, and the individual applying must be a responsible party for the business.

Where can you find your employer identification number?

If you think you have an EIN already but can’t find the number, the IRS suggests several ways to try retrieving it.

  • Reach out to your banking institution if you’ve used your EIN to open a bank account.
  • Find a prior federal tax return for your business (it should have your EIN).
  • Search for the computer-generated notice provided by the IRS when you applied for the EIN.
  • Contact the IRS Business & Specialty Tax Line at 1-800-829-4933.
Read more: Tax tips for new business owners

Bottom line

An employer identification number is like a Social Security number for your business. You can use it to pay taxes, apply for business credit cards and manage your business finances.

If you’re a freelancer or sole proprietor, an EIN isn’t required — but you might find getting one helpful. For example, you can use an EIN to open your own business checking account to separate your business finances from your personal finances. And you can avoid sharing your Social Security number when working with others.

Visit IRS.gov, review the requirements carefully, and submit the necessary IRS form to obtain an employer identification number.


About the author: Latoya Scott is a freelance writer and certified financial education instructor with an MBA from South University. She is the creator of LifeandaBud… Read more.