Before you formed your own business, chances are the only time you saw a Federal Employer Identification Number (FEIN or EIN) was when you received a W2 tax form from your employer. Now, suddenly, you are faced with obtaining an EIN of your own.
EINs are issued by the Internal Revenue Service (IRS), and many new entrepreneurs are daunted by the prospect of dealing with the IRS in any way (who really feels comfortable filing their taxes?). But applying for an EIN is actually very straightforward.
Understanding exactly what an EIN is, why you need one, and how to acquire one should help relieve any anxieties you may have.
What Is an EIN?
An EIN is also known as a FEIN, a Federal Tax ID, and a Federal Tax Identification Number.
To file a federal tax return, an individual needs a social security number. The IRS uses social security numbers to identify taxpayers.
A Federal Employer Identification Number works in the same way for business entities such as limited liability companies (LLCs) and corporations. A business’s EIN is unique and remains with that company throughout its existence. Even if the company closes down or dissolves at some point in the future, its EIN never gets used again.
Determining If You Need an EIN
Not every business needs an EIN. Sole proprietors and single-member LLCs taxed as pass-through entities do not need an EIN unless they have employees (though there are several reasons why “solopreneurs” should consider getting an EIN anyway). The IRS lays out an easy formula to determine if your business needs an EIN.
If you can answer YES to any of the following questions, you need an EIN:
- Does your business have employees?
- Does your business operate as a corporation or a partnership?
- Does your business file one of the following returns: Employment, Excise, or Alcohol, Tobacco and Firearms?
- Does your business withhold taxes on income (other than wages) paid to a non-resident alien?
- Do you have a Keogh plan?
- Is your business involved with any of the following:
- Trusts (except for certain exempt organizations)
- Real estate mortgage investment conduits
- Nonprofit organizations
- Farmers’ cooperatives
- Plan administrators (an organization that processes insurance claims or aspects of employee benefit plans for separate entities)
Additionally, all corporations must have an EIN. This is true even for corporations formed as holding companies without the intent to conduct business. Every American corporation must file taxes with the IRS, and hence every American corporation must have an EIN.
How to Apply for an EIN
There are several ways to apply for an EIN. The easiest way (and the one preferred by the IRS) is to apply for an EIN online. The IRS processes online EIN applications immediately.
You can also apply for an EIN by faxing or mailing the Application for Employer Identification Number (Form SS-4) to the IRS. Be sure to check for the correct fax number or mailing address at “Where to File Your Taxes” (for Form SS-4) on the IRS website.
Canceling an EIN
You cannot cancel an EIN. Once the number is issued to a business entity, it is never reused for any reason. Even if your business never files a federal tax return, the EIN is never canceled or recycled.
The IRS can, however, close your business account (for example, if your business never opens).
To close your business account with the Internal Revenue Service, you must send a letter to the IRS that includes the following information:
- The legal name of your business entity
- Your business’s EIN
- Your business’s address
- The reasons for closing the account
- Your EIN Assignment Notice (if you have it)
However, if your company still has unsettled business with the IRS, such as owing taxes or needing to file a return, you must settle any such business and pay any required taxes before the IRS will close your business account.
EINs For Non-U.S. Residents
Foreign entrepreneurs seeking to form a U.S. company can obtain an EIN for their business in one of two ways. You can hire a third-party (such as a corporate lawyer or registered agent service) to apply for an EIN on your behalf, or you can obtain an EIN on your own.
Foreign applicants can only apply for an EIN by fax, by mail, or by phone—the IRS’s online application option isn’t available. International applicants can call the IRS at 267-941-1099, Monday through Friday between 6 PM and 11 PM, Eastern Standard Time. The IRS recommends completing Form SS-4 in advance of calling to make the process easier.
Some foreign applicants will first need to apply for an Individual Taxpayer Identification Number (ITIN). An ITIN is similar to a Social Security Number, but it is assigned to foreign nationals and other non-residents who do not qualify for an SSN.
Not all foreign applicants must have an ITIN. If you can answer YES to any of the following questions, you will need an ITIN:
- Will you hire U.S. employees?
- Do you intend to travel to the U.S. and conduct business yourself?
- Do you need to open a U.S. bank account?
To apply for an ITIN, you must submit an Application for IRS Individual Taxpayer Identification Number (Form W-7). This should be mailed to the IRS, and you should include a federal tax return, proof of your identity, and your foreign status documents.
Most businesses will need an EIN. Given that the application is free and the process fairly straightforward, there’s little reason to feel intimated. On the other hand, if you just prefer not to deal with the IRS, there are plenty of EIN services that can acquire an EIN for you for a one-time fee.
Once your business has its EIN, you will be set for filing federal taxes with the IRS
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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.