What Is an Employer Identification Number (EIN)?

An Employer Identification Number (EIN) is a unique identification number that is assigned to a business entity so that it can easily be identified by the Internal Revenue Service (IRS). It is commonly used by employers for the purpose of reporting taxes.

The EIN is also known as a Federal Tax Identification Number. When it is used to identify a corporation for tax purposes, it is commonly referred to as a Tax Identification Number (TIN).

Understanding an Employer Identification Number (EIN)

Just as the Social Security Number (SSN) is used to identify the individual residents of the United States, the Employer Identification Number (EIN) is issued to identify the business entities in the country. The EIN is a unique nine-digit number issued by the IRS and includes information about which state the corporation is registered in.

Unlike the SSN, the EIN is not considered sensitive information and is freely distributed by many businesses through publications and the internet.

The digits of an EIN are formatted as follows: XX-XXXXXXX. The IRS uses the EIN to identify taxpayers that are required to file various business tax returns.

Business entities looking to operate in the U.S. must apply for an EIN by phone, online, fax, or by mail. All forms of businesses can apply for and be issued EINs, entities such as limited liability companies (LLCs), sole proprietorships, non-profit organizations, government agencies, S corporations, partnerships, estates and trusts, etc. Furthermore, the IRS is not biased towards the size of the company as a company with only one employee is as eligible for an EIN as a multinational corporation.

Key Takeaways

  • An Employer Identification Number is a unique number assigned to a business so that it can easily be identified by the IRS.
  • Applying for one is free and applications are available on the IRS website and can easily be filled and submitted electronically.
  • A business must be located in the U.S. and have a valid taxpayer identification number before it can be issued an Employer Identification Number.

How to Get an EIN

Applying for an EIN costs nothing and an application form available on the IRS website can easily be filled and submitted electronically. Once the online information has been validated, an EIN is assigned immediately. However, a business must be located in the U.S. and must have a valid taxpayer identification number before it can be issued an Employer Identification Number.

A business needs an EIN in order to pay employees and to file business tax returns. Furthermore, financial institutions such as banks, credit unions, and brokerage houses will not open an account for a corporation without an EIN. Self-employed individuals such as subcontractors are typically required to have an EIN, which will be used by the primary contractor to report to the IRS all business income paid to the subcontractor.

Employer Identification Numbers are unique to the businesses to which they are assigned. The numbers never expire, and the same number set is never reissued to another business, even if the original employer goes out of business.

Special Considerations

Businesses that have changed their ownership structure usually must apply for a new EIN. For example, sole proprietors who plan to incorporate their business must apply for a new EIN. Depending on the nature of the particular taxpayer, the EIN may or may not be the taxpayer identification number (TIN) used by the IRS. For sole proprietors, the TIN is their Social Security number or an employer identification number. For corporations, partnerships, trusts, and estates, this number is an EIN.