An Employer Identification Number (EIN) is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to businesses and other entities for tax purposes. Sometimes referred to as a Federal Tax Identification Number (FTIN), an EIN serves several important functions:
Purpose of an EIN:
- Tax Identification:
- An EIN is used by the IRS to identify a business entity for tax reporting and filing purposes. It is analogous to an individual’s Social Security Number (SSN) but is used for businesses.
- Business Operations:
- It is required for businesses that have employees, operate as a corporation or partnership, or file certain types of tax returns (such as excise tax or alcohol/tobacco/firearms tax).
- Opening Bank Accounts:
- Banks often require an EIN to open a business bank account or apply for a business loan.
- Legal Entity:
- It helps establish the legal identity of a business entity, separate from its owners or members.
Obtaining an EIN:
- Application: Businesses can apply for an EIN directly from the IRS through various methods, including online, by phone, by fax, or by mail.
- Free Service: There is no cost to apply for an EIN.
- Immediate Issuance: For most applications submitted online, the IRS issues the EIN immediately upon verification.
- Requirement: Most businesses need an EIN regardless of whether they have employees. Sole proprietors who do not have employees and do not file certain excise tax forms may use their SSN instead of an EIN, but an EIN can still be advantageous for privacy and organizational purposes.
How to Apply:
- Online: Use the IRS’s online EIN application tool (IRS.gov) to obtain an EIN immediately.
- Fax or Mail: Fill out Form SS-4 (Application for Employer Identification Number) and submit it via fax or mail to the IRS.
Summary:
In essence, an EIN is a crucial identifier for businesses and other entities recognized by the IRS for tax purposes. It facilitates tax reporting, hiring employees, opening bank accounts, and conducting various financial transactions that require business identification. Ensuring that your business has an EIN is an important step in establishing its legal and operational framework.
