Employer Identification Number (EIN)
A nine-digit federal tax identification number assigned by the IRS to identify business entities for tax filing, employment, and banking purposes. Required for any entity with employees, partnerships, corporations, multi-member LLCs, and most fiduciary arrangements. Obtained by filing IRS Form SS-4 or applying through the IRS online portal.
An Employer Identification Number (EIN) is a nine-digit federal tax identification number assigned by the Internal Revenue Service to identify business entities for tax filing, employment reporting, and banking purposes. Format: XX-XXXXXXX. Despite the name, an EIN is required for many entities that have no employees, including partnerships, corporations, multi-member LLCs, single-member LLCs that elect corporate tax treatment, trusts, and estates. The EIN is also colloquially known as the Federal Tax ID Number or Federal EIN.
Who needs an EIN
An EIN is required for any entity that (1) has employees; (2) operates as a corporation or partnership; (3) files employment, excise, or alcohol/tobacco/firearms tax returns; (4) withholds taxes on income paid to a non-resident alien; (5) has a Keogh plan; or (6) is involved with certain types of organizations including trusts, estates, real estate mortgage investment conduits, nonprofit organizations, farmers' cooperatives, or plan administrators. Single-member LLCs without employees and disregarded for federal tax purposes may use the owner's Social Security Number instead.
Application process
The IRS issues EINs through several channels: (1) online, fastest, immediate issuance via the IRS website, available to domestic entities whose principal place of business is in the United States or a U.S. territory and whose responsible party has an SSN or ITIN; (2) by mail or fax, IRS Form SS-4 submission with 4-week (mail) or 4-day (fax) processing; (3) by phone, for international applicants. There is no fee. The "responsible party", the natural person who controls, manages, or directs the entity, must be identified on the application with that person's individual SSN or ITIN.
Common pitfalls
Frequent EIN issues include: (1) applying before a corporation or LLC is formed with the Secretary of State, which the IRS says can delay the application; (2) listing a non-individual as the responsible party, the IRS now requires an individual; (3) failing to update the IRS when the responsible party changes (Form 8822-B, due within 60 days); and (4) confusing the EIN with the state taxpayer number assigned by the Texas Comptroller, which is a separate identifier with separate administrative requirements.
For Texas businesses, a common formation sequence is: (1) form the entity with the Secretary of State (file Certificate of Formation); (2) obtain the EIN from the IRS; (3) complete the Comptroller's franchise tax accountability questionnaire, since the Comptroller opens the franchise tax account from Secretary of State data, and obtain a sales tax permit if selling taxable goods or services; (4) open business bank accounts; (5) make tax elections (S-corp Form 2553, if applicable, no more than 2 months and 15 days after the start of the tax year the election is to take effect).