A federal employer identification number (EIN), also sometimes referred to as a tax identification number, is a nine-digit code that businesses use to identify themselves for tax reporting, banking, and other purposes. Sole proprietorships without employees are allowed to use the owner's Social Security number for tax reporting purposes. But any company that has employees other than the owner—in addition to all partnerships, limited liability companies, and corporations—must instead apply for and use an EIN. The EIN is specific to a certain business, like a Social Security number is specific to a certain person. Therefore, if an individual or group owns more than one business, a separate EIN is required for each one.
There are several situations in which a business person should apply for an EIN. For example, an EIN may be needed in order to start a new business (other than a sole proprietorship with no employees) or upon the purchase of an ongoing business. An EIN is also needed when a business undergoes a change in its organization type (i.e., from a sole proprietorship to partnership or corporation) or when it hires employees for the first time. Some businesses may require an EIN in order to create a pension plan or form a trust. Still others find that they must have an EIN for banking purposes (many banks hold commercial accounts under EINs and personal accounts under Social Security numbers).
Businesses are required to file for an EIN as soon as it is needed for one of the above-mentioned reasons. In order to be assigned an EIN, the company must file Form SS-4, the Application for Employer Identification Number, with the Internal Revenue Service (IRS). The forms are available at all IRS and Social Security offices, or they can be downloaded from the IRS web site. No application fee applies, but the form can take several weeks to process. If any business tax forms are due in the meantime, the small business owner should simply write "applied for" in the space for the company's EIN. In addition to the federal EIN, states that charge their own income tax often require businesses to file for a state EIN.