Applying for an employer identification number (EIN) may be a crucial part of the startup process for any new business. This number will be used throughout the life of the business, from the early stages of setting up bank accounts and applying for licenses to hiring employees and filing taxes.
In this article, we will dive deeper into what an EIN is, whether your business needs one, the benefits of an EIN, and how to apply for an EIN.
What is an employer identification number?
An employer identification number (EIN) is a unique nine-digit identifier that the Internal Revenue Service (IRS) assigns to individual businesses. It serves as an important means of identifying the business for financial and legal purposes.
EIN vs. TIN
An EIN 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 difference between EIN vs. TIN is that EIN is used to identify business entities instead of individuals.
FEIN vs. EIN
A federal employment identification number (FEIN) is the same as an EIN, and they are often used interchangeably.
EIN vs. tax ID
An EIN is also known as a federal tax identification number or tax ID. It may also be referred to as a business tax ID number.
Does your business need an EIN?
Most businesses use an EIN, but it’s not required for every kind of company. Your business will need an EIN, if any of the following apply:
- Has employees
- Operates as a corporation or partnership
- Files certain tax returns
- Withholds income taxes (other than wages) non-resident aliens
Different types of businesses will have different requirements.
- 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.
It’s important to note that when and if you decide to change your business structure or ownership of business, you will need to file for a new EIN. The old EIN will become inactive and will automatically be replaced with the new.
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.
1. Prevent identity theft
If you are a freelancer or independent contractor, an EIN helps separate your personal finances from your business finances. However, if 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.
2. 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 for payroll later on.
3. 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.
4. Credit tracking
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
The EIN application can be submitted online through the IRS website, and any business in the United States can qualify for one. 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.
How long will it take to get an EIN?
There are 4 ways to apply for an EIN. The fastest way to obtain an EIN is online. Different methods of applying for an EIN will vary in processing times.
- Apply for an EIN online: The IRS website provides an easy way to request an identification number with the EIN Assistant. If you choose this method, you will need to complete the form in one session. Processing will be done the same day.
- Fax an EIN application: Download, complete, and fax Form SS-4 to the IRS and your EIN will process within 4 business days.
- Mail an EIN application: Instead of faxing, you can choose to mail in Form SS-4 to the IRS. Be sure to submit the application 4-5 weeks prior to when you need an EIN as it will take that long to receive your EIN in the mail (if there are no errors on your application).
- Phone application for EIN: If you do not have legal residency in the United States, you have the option to phone in your application. With a successful identification of your company with an IRS agent, you will obtain your EIN within the same day.
EIN lookup: How to find your employer identification number
The IRS website does not have a public database to perform an employer identification number lookup for your or other companies. If you had previously applied for an EIN and have forgotten it, you may be able to find your EIN on W-2 forms from previously filed tax returns, applications for business loans, applications for lines of credit, and more.
Try contacting financial institutions with which you shared your EIN in the past, such as your business bank.
How to find employer identification number without W-2
Additionally, there are other ways to locate your EIN number:
- EIN confirmation letter: Depending on your chosen method of application, you should have received a confirmation letter from the IRS, either online, by mail, or email. Look through your copy to find your EIN.
- IRS: If you still cannot locate your EIN on your own, you can contact the IRS and they will help you out. You will need to provide information to verify your identity and association with the company for which the EIN was issued to.
Set your business up for success with an EIN
A company's EIN is exclusive to that particular business and is necessary for paying federal business taxes, employing staff, starting a business bank account, and obtaining business licenses and permits. Some wholesale distributors may even mandate the provision of an EIN to facilitate wholesale purchases.
Ensure you have an EIN ready should you make such purchases. After obtaining your EIN, consider BILL in helping you streamline your accounts payable, providing you with a solution to easily handle your invoices and communication with vendors. Try BILL risk-free today!