An Employer Identification Number (EIN) is a unique nine-digit number the Internal Revenue Service (IRS) assigns to identify a business entity for tax purposes. It is used by employers, sole proprietors, corporations, partnerships, non-profit organizations, trusts, and other entities. The EIN functions like a Social Security number for businesses, facilitating the IRS in tracking tax reporting. Example: 11-2345678.
An EIN is a crucial component for businesses in the U.S., assisting with tax reporting, regulatory compliance, and other operational activities. Understanding the purpose and process of obtaining an EIN is essential for business owners to ensure your companies are correctly identified and compliant with federal regulations.
The IRS uses your EIN to keep track of your business tax returns, and other financial institutions may ask for it as part of their identity verification processes. Having an EIN is essential for businesses to operate legally and efficiently, ensuring compliance with federal tax laws and enabling smooth financial transactions.
Most businesses need an EIN, including those that engage in actions such as:
These business entities generally fall into the following buckets:
An EIN is used for various purposes, including:
There are also residual perks to utilizing an EIN, such as:
Businesses can apply for an EIN online, by mail, fax, or phone in international cases. The process is straightforward and typically involves providing basic information about the business, like legal name, mailing address, and type of entity.
Once issued, an EIN is permanent and does not expire. Businesses might need a new EIN if their structure changes significantly, such as converting from a sole proprietorship to a corporation, or if ownership changes substantially. However, changes like business name or location usually do not require a new EIN. Businesses that close or cease operations should notify the IRS to deactivate their EIN.
Examples:
While an EIN serves as a business's ID for tax purposes, a SSN serves the same function for individuals. An EIN helps maintain separation between personal and business finances and liabilities, which is crucial for legal and financial protection as your business continues to excel.