The Small Business Guide to Employer Identification Numbers
After registering your business, the next important step is getting a free employer identification number (EIN) from the IRS. Heres how.
Your dream of opening a small business requires all the usual first steps: choosing a name for your business, registering the business with your state, deciding how you want your business structured for filing taxes, opening a business bank account and, finally, “hanging up your shingle.”
But after registering your business, the next important step is getting a free employer identification number (EIN) from the IRS — also known as a federal employer identification number or FEIN.
Why you need an EIN
An EIN is a unique nine-digit number the agency uses to identify you as a business entity. Most businesses need an EIN, regardless of size or if they have employees.
Sole proprietors don’t need an EIN; many use their Social Security number (SSNs) instead. However, an SSN can expose an entity to identity theft and financial risk when used on business documents. The risk can devastate a small business, which makes getting an employer identification number a better option. An EIN not only designates a small business as a serious entity, it also provides critical identity protection.
Most states and some local-level governments require businesses to have a state tax identification number, in addition to an EIN. The state tax ID is used only for filing state taxes. If this applies to you, you will need an ID for every state in which you operate your business and file taxes. Getting a state tax ID number varies by state, so you will need to go on your state’s revenue services website for instructions on how to apply for one.
What is an employee identification number used for?
Businesses use their EIN identification to comply with various laws, regulations, and ordinances. But they can also be used for discretionary purposes. Examples of how an EINs are used include:
- Starting, operating or buying a business
- Forming a limited liability company (LLC), corporation or partnership as a business structure
- Hiring employees
- Creating a trust, estate or nonprofit entity
- Filing business/employer taxes
- Complying with the IRS
- Filing taxes upon death
- Opening a business bank account
- Applying for a business credit card
- Applying for a business loan
- Applying for business permits
- Establishing a credit history for your business
If you used your EIN to open a bank account or apply for a state or local license, be sure the bank or agency protects your number.
How to apply for an EIN
Before applying for an EIN, you must decide how you want to structure your business for tax purposes. The application form asks if you want to register your business as a partnership, corporation or limited liability company (LLC). If you’re not sure, the U.S. Small Business Administration (SBA) describes the structures, along with the business and tax benefits and disadvantages of each one. Consider consulting an accountant or legal advisor to determine the best structure for your type of business.
You can download an EIN application form — SS-4, from the IRS’s website — fill out the form and mail it to the agency. Or you may file completely online. The IRS recommends that you apply online.
The 12 steps
The steps for filling out an employer identification number application form are the same, whether you download it or complete it online:
- Log onto the IRS website https://sa.www4.irs.gov/modiein/individual/index.jsp. Scroll to the bottom of the page to begin the application. You will be prompted to “continue” after completing each section. (Note: the application form accepts only ampersands [&] and hyphens [-] as special characters.)
- Select the legal and tax structure for your business.
- If your business structure is an LLC, you must specify the number of members in your company and the state(s) in which it operates.
- State the reason for your application.
- Identify and describe a contact person (responsible party) for your business.
- Provide a physical location for the business, which the U.S. Postal Service will confirm. (Abbreviate where possible to save line space.)
- Provide a legal and trade name for your business. A trade name is what an entity is “doing business as.”
- Answer a series of questions about special federal excise taxes.
- Describe what your business does.
- State whether you want to receive your EIN confirmation letter, Form CP-575, online or by email.
- Verify all the information on the form.
- Submit your application.
Common FAQs about EINs
Of course, applying for an EIN is a relatively simple process, but there are often questions that linger. Luckily, there’s more information that’s useful beyond the application process. Here are frequently asked questions, along with answers, that you will need once your EIN is approved:
Will my business’s EIN be available to the public?
Yes. EINs are part of the public domain. For instance, if you pay employees or contractors, you would list the EIN on the tax forms you issue. A W-2 form would include the EIN in box “B” of the form while a 1099 form would include it under the company name and address.
Nonprofits have their EIN listed in the IRS’s Tax Exempt Organization database.
What if I forget or lose my EIN?
You can retrieve your EIN by looking at the original notice you received from the IRS when it issued your EIN (Form CP-575 is generally not re-issued), finding an old tax return with your EIN on it, or calling the IRS’s business & Specialty Tax Line at 800-829-4933. The IRS will do a search. The agent will ask you a series of questions to verify your identity and tell you the number over the phone. Be sure to call between 7 a.m. and 7 p.m., your local time.
How can I get a copy of my EIN certificate?
Call the IRS’s business & Specialty Tax Line at 800-829-4933 and ask the agent for a Form 147c, or employer identification number verification letter.
Will my EIN ever change?
If you change your business’s structure or ownership, you will need to change your employer identification number. And although you’re not required to change your EIN under other circumstances, if you choose to change it, go to the IRS’s Business Name Change page for instructions on what you need to do.
