Chapter 17: How to Get an Employer Identification Number
One of the first administrative tasks many entrepreneurs complete after starting a business is obtaining an Employer Identification Number, commonly known as an EIN. Although the name suggests it is only for businesses with employees, many businesses without employees also obtain one because it can simplify banking, taxes, and other business activities.
An EIN is a unique nine-digit number issued by the Internal Revenue Service (IRS) to identify a business for federal tax purposes. You can think of it as the business equivalent of a Social Security number for many tax and administrative functions.
Whether you are forming a limited liability company (LLC), partnership, corporation, nonprofit organization, or certain other business entities, understanding how an EIN works is an important step toward building a properly organized business.
What Is an Employer Identification Number?
An Employer Identification Number is a federal tax identification number assigned by the IRS.
Businesses use an EIN for various federal tax reporting and administrative purposes.
An EIN may be used for:
- Filing certain federal tax returns
- Hiring employees
- Opening business bank accounts
- Applying for business financing
- Establishing business credit
- Registering with certain government agencies
- Working with vendors and payment processors
Although the IRS issues EINs, obtaining one does not automatically register your business with your state or provide any required licenses or permits.
Does Every Business Need an EIN?
Not every business is required to obtain an EIN.
Whether your business needs one depends on factors such as:
- Business structure
- Whether you hire employees
- Federal tax filing requirements
- Banking needs
- Business activities
For example, many corporations and partnerships generally require an EIN.
Many LLCs also obtain one, even when they have only one owner.
Some sole proprietors without employees may not be legally required to obtain an EIN for federal tax purposes, but they often choose to do so because it can simplify banking and help separate personal and business activities.
Since individual circumstances vary, business owners should review current IRS guidance or consult a qualified tax professional.
Why Many Businesses Choose to Obtain an EIN
Even when not legally required, an EIN offers several practical advantages.
Opening a Business Bank Account
Many financial institutions request an EIN before opening a business checking or savings account.
A separate business account helps:
- Separate personal and business finances
- Improve bookkeeping
- Simplify tax preparation
- Present a professional image
- Build stronger financial records
Keeping business finances separate is considered a best practice regardless of business size.
Hiring Employees
Businesses hiring employees generally need an EIN.
Employers use the EIN for payroll tax reporting, federal employment tax filings, and other employment-related requirements.
If you expect to hire employees in the future, obtaining an EIN early may simplify the hiring process later.
Filing Federal Taxes
The EIN identifies your business for many federal tax purposes.
Depending on your business structure and activities, the EIN may appear on:
- Business tax returns
- Payroll tax forms
- Information returns
- Retirement plan documents
- Other IRS filings
The exact filing requirements depend on the business structure, tax elections, and business activities.
Applying for Business Financing
Banks, credit unions, and lenders frequently request an EIN when reviewing business loan applications.
The EIN helps identify the business separately from its owners.
It may also be requested when applying for:
- Business credit cards
- Equipment financing
- Commercial loans
- Lines of credit
Having an EIN does not guarantee financing, but it is often part of the application process.
Working with Vendors
Some suppliers request an EIN before establishing commercial accounts.
Using an EIN instead of a personal Social Security number may also reduce the need to share personal identifying information during normal business transactions.
Building Business Credit
Businesses often seek to establish credit histories separate from their owners.
An EIN may be used when:
- Opening vendor accounts
- Applying for commercial financing
- Establishing payment histories
- Registering with commercial credit reporting agencies
Building business credit generally takes time and depends on responsible financial management.
How to Apply for an EIN
The IRS issues Employer Identification Numbers directly.
The application process generally requires information about:
- Business name
- Responsible party
- Business structure
- Business address
- Reason for applying
- Business activities
The IRS provides EIN applications directly without charging an application fee.
Business owners should be cautious of third-party websites that charge unnecessary fees simply to submit an application on their behalf.
Always verify that you are using official government resources when applying.
When You May Need a New EIN
Receiving an EIN does not necessarily mean it remains valid for every future business change.
Certain changes in ownership or legal structure may require obtaining a new EIN.
Examples may include:
- Creating a new legal entity
- Certain ownership changes
- Business reorganizations
However, changes such as updating your business address or changing the company name often do not require a new EIN.
Because these rules depend on specific circumstances, review current IRS guidance whenever significant business changes occur.
Protect Your EIN
Like other important business information, your EIN should be protected.
Store official documents securely.
Only provide the number when necessary for legitimate business purposes.
Maintain accurate records showing:
- IRS confirmation
- Business registrations
- Tax filings
- Banking information
Good recordkeeping helps simplify tax preparation and future business transactions.
Keep Business Records Organized
Once you receive your EIN, maintain an organized file containing:
- IRS confirmation notice
- Formation documents
- Operating agreement
- Business licenses
- Tax registrations
- Bank account information
- Insurance policies
Well-organized records save time when working with accountants, banks, lenders, government agencies, or legal professionals.
A Small Number That Plays a Big Role
Although obtaining an Employer Identification Number is usually a straightforward step, it plays an important role in the life of many businesses. An EIN helps establish your business identity for federal tax purposes and may be necessary for banking, hiring employees, obtaining financing, working with vendors, and meeting various reporting obligations.
As your business grows, maintaining accurate records and understanding how your EIN fits into your overall business operations will help keep your company organized and prepared for future opportunities.
In the next chapter, you’ll learn about business licenses, permits, and zoning requirements, including why different industries and locations have different rules and how to determine which approvals your business may need before opening its doors.
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