Every business that has employees is required to have an employer ID number (EIN), but you might need an EIN even if you don't have employees, at least as you start your business. It's effectively your business's Social Security number. The term "Employer ID Number" is something of a misnomer because even businesses without employees often find that they need one.
You might want to consider getting an EIN just to be on the safe side—it will be there if you're ever called upon to provide one. It doesn't cost anything, so why not make a small investment of your time?
What Is an EIN?
An EIN is a number assigned by the Internal Revenue Service to identify a business for tax purposes. You must include your business's tax ID on bank account applications, income tax forms, and employment tax reports and payments.
A tax ID for a business serves the same purposes as a Social Security number for individuals.
The terms "EIN," "employer ID," "tax ID," and "taxpayer ID" are tossed about loosely, but there are actually distinct differences between these terms. The IRS has specific definitions.
The general term is "taxpayer ID," which can be one of several different numbers.
An Employer ID is a taxpayer ID for a business, whereas a Social Security number is a taxpayer ID for an individual.
Another type of tax ID is the "Individual Taxpayer Identification Number (ITIN). It's a tax processing number used for people who need a tax ID but who can't get a Social Security Number.
Your business will need an EIN if you have employees or if you file certain kinds of taxes. It will also need one if your business is taxed as a corporation or a partnership.
Some other reasons your business might need an EiN:
- If you file tax returns for employment taxes, excise taxes, and alcohol, tobacco, and firearms.
- If you withhold taxes on income (not wages) paid to a non-resident alien
- if you have a Keogh plan (a retirement plan for self-employed people).
You might not need an EIN for tax purposes if your business is a sole proprietorshi and you don't have employees. In this case, your EIN is your Social Security number.
Before You Apply - Designate Your Responsible Party
One question on the EIN application that you may wonder about is the requirement that you designate the responsible party for your business. The responsible party is in item 7a on the SS-4 form.
The IRS wants you to include the name and taxpayer ID of the person who controls, manages, or directs your business and the disposition of its funds and assets. The responsible party can't be a business; it must be a person. If your business has more than one such person, just select one for the application.
Before you apply for your Employer ID Number, go to the IRS website and print out the application (Form SS-4). Then complete the form and use it to apply. Having all the information will make the application process go more smoothly.
Here are several easy ways to apply for an EIN. The online and phone options will give you an EIN immediately.
- Online. You can apply online using the IRS EIN Assistant process. You must complete the application in one session. You can't save the form and come back to it later. (Another reason to print out the form and answer the questions before you begin.)
- Phone. Call the IRS Business and Specialty tax line at 800-829-4933.
- Fax your completed – and signed – SS-4 form to the IRS.
The IRS has limited Form SS-4 submission to one per day since 2012, and this rule covers all submissions, whether they're made online, by fax, or by U.S. mail.
Effective May 13, 2019, the IRS requires individuals applying for an EIN to have a Social Security Number or ITIN for the responsible party on the form.
When Do You Need a New EIN?
Simple changes to your business usually don't require a new EIN, but you might need a new one if you change your legal business structure, such as from a corporation to some other entity or from a sole proprietorship to a corporation.
When you do need a new EIN:
You will need a new EIN if:
- you change your business type
- you purchase or inherit an existing business that you operate as a sole proprietorship
- your business is a subsidiary of a corporation using the parent's EIN or you become a subsidiary of a corporation
- if a new corporation is created after a statutory merger.
When you don't need a new EIN:
Sole proprietors must get a new EIN if they are subject to a bankruptcy proceeding, but if your corporation or partnership declares bankruptcy, you don't need an EIN. Other cases in which you need a new EIN:
- If you simply change the name or address of your business.
- If your corporation elects S corporation status.
- If you end your partnership business and begin a new one.
EINs Aren't Recycled
Your EIN is your EIN...period. It's like your tax/legal fingerprint. It won't eventually end up with another business if your business ceases to operate. It won't expire. When you're finished with it, it's gone forever.