What Is an Employer Identification Number (EIN)?
An Employer Identification Number (EIN) is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to identify business entities for federal tax purposes. Sometimes referred to as a Federal Employer Identification Number (FEIN) or Federal Tax Identification Number (FTIN), the EIN is essential for various tax reporting and compliance activities within the realm of Taxation and Business Operations. This identifier functions much like a Social Security Number (SSN) does for individuals, but for a business. The EIN is a critical component for businesses engaging in activities such as hiring employees, opening bank accounts, and filing federal taxes.27
History and Origin
The concept of a taxpayer identification number for businesses in the U.S. has roots in the broader evolution of the U.S. tax system. The specific Employer Identification Number system, as it's known today, was formalized by the IRS. It gained widespread importance as the U.S. tax code became more complex and the need for a standardized identification system for businesses grew. The authority for EINs is derived from provisions requiring taxpayer identification for the purpose of employment tax payments, initially enacted as part of the revision of the Tax Code in 1954, and broadened subsequently. Since 2001, EIN assignment has been largely centralized by the IRS for efficiency.
Key Takeaways
- An EIN is a unique nine-digit number issued by the IRS to identify business entities.26
- It is mandatory for most businesses, including those with employees, corporations, and partnerships.25
- The EIN is crucial for filing federal taxes, opening business bank accounts, and applying for certain licenses.24
- Applying for an EIN directly through the IRS is free of charge.23
- An EIN is a type of taxpayer identification number, but it differs from an individual's Social Security Number (SSN).22
Interpreting the EIN
The Employer Identification Number itself is a sequential identifier and does not contain embedded information about a business's financial health, performance, or industry sector. Its primary purpose is administrative: to uniquely identify a business for tax and legal purposes. When a business uses its EIN, it signals its formal existence as a recognized entity by the federal government. For instance, when a small business applies for a loan or establishes a merchant account, providing an EIN confirms its legal standing. The integrity of financial records and proper tax returns relies heavily on the correct and consistent use of this unique business identifier.
Hypothetical Example
Imagine Sarah is starting a new catering company, "Savory Bites Catering." She plans to hire a few part-time chefs and front-of-house staff. To formally establish her business and operate legally, Sarah must obtain an Employer Identification Number. She visits the IRS website and completes the online application for an EIN. During the application process, she specifies that her business will be a Limited Liability Company. Upon successful submission, the IRS immediately issues her a unique nine-digit EIN. With this EIN, Sarah can now open a dedicated business bank account for Savory Bites Catering, register for state and local business licenses, and properly process payroll for her employees, ensuring she complies with all federal and state tax obligations.
Practical Applications
The Employer Identification Number is a foundational requirement for many business operations and regulatory compliance:
- Hiring Employees: Any business that hires employees must have an EIN to report wages and employment taxes to the IRS.21
- Business Formation: Most structured business entities, such as corporations, partnerships, and LLCs, are required to obtain an EIN regardless of whether they have employees.20
- Banking and Finance: Financial institutions require an EIN to open business bank accounts, apply for business loans, and establish lines of business credit.19
- Tax Filing: The EIN is used to file various federal business tax returns, including income tax, employment tax, and excise tax returns.18
- Regulatory Compliance: Government agencies, non-profit organizations, and certain trusts and estates also use EINs for identification and compliance purposes.17
- Applying for Licenses and Permits: Many state and local agencies require a federal EIN before issuing business licenses and permits. The U.S. Small Business Administration provides guidance on obtaining federal and state tax IDs for businesses.16
Limitations and Criticisms
While essential for business identification and tax administration, the Employer Identification Number has specific limitations. An EIN is not designed to provide a comprehensive view of a business's financial health or operational status. It is purely an identifier for tax purposes. For example, an EIN does not indicate whether a business is actively trading, profitable, or even solvent. It also does not automatically grant a non-profit organization tax-exempt status; that requires a separate application to the IRS.
Furthermore, while public companies' EINs may be publicly available through SEC filings, EINs for private companies are generally not public information.15 There is no central, publicly accessible online tool provided by the IRS to search for an EIN by business name, although some state authorities may provide this for businesses registered within their state.14 This lack of a universal public lookup tool can sometimes make due diligence challenging for third parties trying to verify a private entity.
EIN vs. Social Security Number (SSN)
The Employer Identification Number (EIN) and the Social Security Number (SSN) are both nine-digit numerical identifiers issued by the U.S. government, but they serve distinct purposes. An EIN is assigned by the IRS to identify business entities, including corporations, partnerships, and employers.13 It is the business's unique identifier for federal tax and legal purposes.12
In contrast, an SSN is issued by the Social Security Administration (SSA) to individuals. It was originally created in 1936 to track earnings for Social Security entitlement and benefit computation purposes.10, 11 Over time, the SSN's use expanded to include personal tax identification and other forms of individual identification, such as for opening personal bank accounts or applying for loans. While a sole proprietorship without employees might use the owner's SSN for tax purposes, any business with employees, or structured as a corporation or partnership, must obtain an EIN.9 The key difference lies in what they identify: an EIN identifies a business, while an SSN identifies an individual.8
FAQs
How do I apply for an EIN?
You can apply for an EIN for free directly through the Internal Revenue Service (IRS) website. The online application is the fastest method, with the EIN often issued immediately upon completion.6, 7 You can also apply by fax or mail using Form SS-4, Application for Employer Identification Number.5
Who needs an EIN?
Generally, a business needs an EIN if it has employees, operates as a corporation or partnership, files certain tax returns (like employment, excise, or alcohol, tobacco, and firearms taxes), or withholds taxes on income paid to a non-resident alien.4 Estates, trusts, and non-profit organizations also typically require an EIN.3 Even a sole proprietorship or single-member LLC needs an EIN if it has employees.2
Can an EIN be cancelled?
The IRS generally does not "cancel" an EIN once it's assigned. While the number remains unique and is never reissued, the IRS can close or deactivate the associated business account if it determines the EIN is no longer needed or the business has ceased operations.
Is an EIN the same as a Tax ID Number?
An EIN is a specific type of taxpayer identification number (TIN). The broader term TIN includes other identifiers like the Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), Adoption Taxpayer Identification Number (ATIN), and Preparer Tax Identification Number (PTIN). So, while all EINs are TINs, not all TINs are EINs.
How do I find an existing EIN for my business?
If you've misplaced your EIN, you can often find it on the original IRS notice issued when you applied, on past business tax returns, or on business bank account statements. You can also call the IRS Business and Specialty Tax Line to retrieve it, provided you can verify your identity as the responsible party for the business.1