Starting a new business or purchasing an existing company involves several important administrative steps. One of them may be obtaining an Employer Identification Number (EIN) from the Internal Revenue Service (IRS).
An EIN is a federal tax identification number used to identify a business or other entity for tax and reporting purposes. It is sometimes compared with a Social Security number (SSN), but an EIN identifies a business or organization rather than an individual.
Depending on your business structure and activities, you may need an EIN for federal tax purposes, hiring employees, banking, tax filings, and other business activities.
The good news is that applying for an EIN directly through the IRS is free.
What Is an EIN?
An Employer Identification Number is a unique nine-digit number assigned by the IRS to identify a business or organization.
Businesses may use their EIN when:
- Filing certain federal tax returns
- Hiring employees
- Paying employment taxes
- Operating as a partnership or corporation
- Paying certain excise taxes
- Opening a business bank account
- Applying for certain business licenses or credit
- Completing other business-related tax and financial documents
An EIN is different from a state tax identification number. States may issue separate identification numbers or registrations depending on the business and its activities.
The IRS also emphasizes that an EIN should be used for business activities and should not be used instead of an individual's SSN or ITIN.
Who Needs an EIN?
Not every business automatically needs a new EIN simply because it begins operating.
Generally, an EIN may be required when a business:
- Has employees
- Operates as a partnership or corporation
- Is subject to certain employment or excise tax requirements
- Changes its business structure in a way that requires a new EIN
- Administers certain trusts, estates, or retirement plans
- Has other federal tax filing or reporting requirements
For example, corporations and partnerships generally need an EIN. A sole proprietor without employees may not always be required to have one, although there can be circumstances where obtaining an EIN is useful or required.
Because EIN requirements depend on the business structure and circumstances, it is important to determine whether your specific business needs one before applying.
The IRS recommends forming an LLC or corporation with the appropriate state authority before applying for the EIN.
How to Apply for an EIN
The IRS offers several ways to apply for an EIN. The appropriate method depends on where the business is located and whether it meets the requirements for the online application.
1. Determine Your Business Structure
Before applying, determine how your business is legally organized.
Your business may be structured as, for example:
- Sole proprietorship
- Partnership
- Corporation
- LLC
- Estate
- Trust
- Certain nonprofit or other organizations
The legal structure is important because it affects the information you provide to the IRS and may also affect your federal tax treatment.
If you are forming an LLC or corporation, complete the appropriate state formation process before applying for the EIN.
2. Gather the Required Information
Before starting the application, have the necessary business information available.
This may include:
- Legal name of the business
- Trade name, if applicable
- Business address
- Entity type
- Date the business was started or acquired
- Reason for applying
- Number of employees expected
- Principal business activity
- Information about the responsible party
The responsible party is generally the individual who owns or controls the business or exercises ultimate effective control over its funds and assets. The IRS requires the responsible party to be an individual in most cases.
You will generally need the responsible party's SSN, ITIN, or another taxpayer identification number as applicable.
3. Apply Through the IRS
For eligible businesses, the IRS online application is generally the fastest option.
The IRS states that eligible applicants can complete the online application and, once the information is validated, receive the EIN immediately. The online application is available at no charge.
Important: Be cautious about websites that charge a fee to obtain an EIN. The IRS provides EINs directly for free.
The IRS online application is intended for qualifying domestic organizations and has specific eligibility requirements. For example, the online system cannot be used when the principal place of business is outside the United States or U.S. territories.
4. Complete the EIN Application
The application will ask questions about your business and its structure.
You may need to provide information about:
- The type of entity
- The reason for requesting an EIN
- The responsible party
- The business address
- The date the business began
- The principal business activity
- Employees, when applicable
Read each question carefully and make sure the information matches your business records.
If someone is applying as a third-party designee, appropriate authorization is required.
5. Save Your EIN Confirmation
Once the IRS assigns your EIN, save the confirmation documentation in a secure location.
The IRS recommends printing or retaining the EIN confirmation letter for your records. The documentation may be useful when opening financial accounts, completing tax filings, or verifying the EIN with other institutions.
Because your EIN can be needed for many future business activities, losing the original documentation can create unnecessary administrative work.
Can International Applicants Get an EIN?
The process is different when the applicant's principal place of business is outside the United States.
The IRS states that applicants who do not have a legal residence, principal place of business, or principal office or agency in the United States or U.S. territories cannot use the online EIN application.
International applicants may use other IRS application methods, including the telephone option described by the IRS for international applicants. The IRS currently lists 267-941-1099 for international applicants.
Fax and mail options are also available in circumstances where the online application cannot be used.
Because procedures and processing times can change, applicants should check the current IRS instructions before submitting Form SS-4.
What If You Lose Your EIN?
If you cannot find your EIN, don't automatically apply for another one.
First, look for the original IRS EIN confirmation, previously filed business tax returns, or records from financial institutions where the EIN was used. The IRS Taxpayer Advocate Service also recommends checking bank or agency records.
If you still cannot locate the number, you can contact the IRS Business and Specialty Tax Line for assistance.
Does an EIN Expire or Get Canceled?
An EIN generally remains the permanent federal taxpayer identification number for the entity to which it was assigned.
If a business closes or no longer needs its EIN, the IRS does not simply cancel the number. Instead, the business can request that the IRS deactivate the associated business tax account after meeting applicable filing and payment requirements.
This distinction is important: an EIN is not reused or reassigned to another business.
Keep Your EIN Information Updated
Business owners should also keep the IRS informed when certain information changes.
For example, changes involving the responsible party generally must be reported to the IRS using Form 8822-B within 60 days.
Keeping business information current can help prevent communication and identification problems with the IRS.
The Bottom Line
Obtaining an EIN is an important administrative step for many businesses, but not every business needs one under every circumstance.
The process is straightforward when you know your business structure, identify the correct responsible party, gather the required information, and apply through the appropriate IRS channel.
Most importantly, apply directly through the IRS whenever possible. An EIN is available from the IRS at no charge, and you should keep your confirmation documentation in a secure location.
If you are unsure whether your business needs an EIN or how your business structure affects your federal tax responsibilities, consider consulting a qualified tax professional before submitting the application.
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