As you will read below, most businesses use a Federal Employer Identification Number (FEIN) which is free to obtain. You can get it online, by mail, fax, or phone once you determine your eligibility.
The federal tax identification number (FEIN) is a unique nine-digit identification IRS number for all businesses in the United States—or an Employer Identification Number (EIN). The IRS issues these federal EINs to sole proprietors, partnerships, corporations (including limited liability corporations), and other entities for tax filing and reporting purposes.
The IRS and other government agencies use a FEIN to identify and track businesses' tax and financial activities. A company must file tax returns and set up retirement and health accounts for employees to receive medical and dental benefits.
Who Needs a FEIN?
A FEIN is necessary for almost every business entity, including sole proprietorships, partnerships, corporations, LLCs, nonprofits, estates, and trusts.
Although every business with employees requires an EIN, the "Employer" label in "EIN" does not imply that a company must have employees to need an EIN. Corporations, trusts, and partnerships, for example, require an EIN whether they have employees or not.
Sole proprietors
The IRS allows you to use your tax ID (e.g., SSN) as your FEIN if you are a sole proprietor with no staff. However, having an EIN helps avoid payment delays if a business lead or customer requests an EIN (rather than an SSN) to close a deal or pay your invoice.
In addition, an EIN may be required by a bank to open a business checking account, and using an EIN as a sole proprietor adds credibility. The IRS requires you as a sole proprietor, to have an EIN if you:
- Have a Keogh retirement plan
- Have employees
- File excise tax returns (tobacco, alcohol, firearms)
Corporations
If your company is incorporated, you will require EIN overlooking whether it is taxed as a C Corporation or an S Corporation. An EIN is necessary if a business is an LLC or partnership that elects to be taxed as a C Corporation or S Corporation under the IRS's "check-the-box" rules.
LLCs
An EIN is required if your LLC has two or more owners, whether it accepts the default tax classification of partnership or elects to be taxed as a corporation (S corporation). For an LLC with only one owner, the IRS disregards the LLC, and all income, loss, and deductions are reported on the owner's federal income tax return.
When Is it Necessary to Change an EIN?
A new EIN is necessary when a company's ownership or structure changes. Estates and trusts file returns if their income exceeds $600.00 per year, reported on the 1041 form.
For sole proprietors, if any of the following statements apply, you will be required to get a new EIN:
- You are in a bankruptcy proceeding
- You accept partners and operate as a partnership
- You incorporate
- You buy or inherit an existing business as a sole proprietorship
- Corporations
Likewise, for any of the below statements, you will be required to get a new EIN:
- The secretary of state grants a new charter to a corporation
- You are or become the subsidiary of a corporation and use the parent's EIN
- You convert to a partnership or sole proprietorship
- A statutory merger results in the formation of a new corporation
In partnerships, you must get a new EIN if:
- Your company is integrated
- One partner takes over to operate as a sole proprietorship
- You dissolve an old partnership and form a new one
For a Limited Liability Company (LLC), a new EIN is necessary if:
- Under state law, a new LLC with more owners is formed (multi-member LLC)
- A new LLC with one owner is formed Under state law (Single Member LLC) and decides to be taxed as an S corporation and C corporation
- Under state law, a new LLC with one owner (Single Member LLC) is formed with an excise tax filing obligation for tax periods beginning or after January 1, 2008 or an employment tax filing requirement for incomes paid on or after January 1, 2009.
For Estates, the IRS recommends getting a new EIN if:
- The estate funds establish a trust (not simply a continuation of the estate)
- You represent an estate that runs a business after the owner dies
In the case of Trusts, a new EIN must be obtained when:
- Many trusts are created or granted by a single person
- A trust converts into an estate
- A living or intervivos trust becomes a testamentary trust
- A living trust ends by transferring its assets to a residual trust
Difference Between a FEIN and Tax ID Number
Both numbers are for identifying and reporting for tax purposes but are not always interchangeable. If your EIN is required, you can use your Tax ID Number or Taxpayer Identification Number (TIN); however, if your TIN is required, you cannot use an EIN in its place. To summarize:
EIN/FIEN
- An EIN identifies businesses for tax purposes.
- You must have an EIN to open a business bank account, file tax returns, and apply for business licenses if you own a business.
- EINs are only issued to form businesses and have nine digits legally.
- Used by the IRS to identify individuals or businesses.
TIN
- A category that includes Social Security Numbers (SSN), Individual Taxpayer Identification Numbers (ITIN), as well as Employer Identification Numbers (EIN).
- The IRS primarily uses these to monitor individual payments for federal income tax and other tax purposes.
- Issued by the IRS to administer tax laws.
- Used by the IRS, banks, and other businesses to identify an entity.
States Without Income Tax
Seven states have no income tax, namely:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington
- Wyoming
Meanwhile, New Hampshire solely taxes income from dividends. What state you are in will influence whether or not you need an EIN or TIN when paying taxes.
States that tax income will calculate data based on the company's structure. Employment insurance and workers' compensation insurance taxes vary by state. To find out if you need a state tax ID number to pay state taxes, visit your state's website.
Helpful Resources:
https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers
As you will read below, most businesses use a Federal Employer Identification Number (FEIN) which is free to obtain. You can get it online, by mail, fax, or phone once you determine your eligibility.
The federal tax identification number (FEIN) is a unique nine-digit identification IRS number for all businesses in the United States—or an Employer Identification Number (EIN). The IRS issues these federal EINs to sole proprietors, partnerships, corporations (including limited liability corporations), and other entities for tax filing and reporting purposes.
The IRS and other government agencies use a FEIN to identify and track businesses' tax and financial activities. A company must file tax returns and set up retirement and health accounts for employees to receive medical and dental benefits.
Who Needs a FEIN?
A FEIN is necessary for almost every business entity, including sole proprietorships, partnerships, corporations, LLCs, nonprofits, estates, and trusts.
Although every business with employees requires an EIN, the "Employer" label in "EIN" does not imply that a company must have employees to need an EIN. Corporations, trusts, and partnerships, for example, require an EIN whether they have employees or not.
Sole proprietors
The IRS allows you to use your tax ID (e.g., SSN) as your FEIN if you are a sole proprietor with no staff. However, having an EIN helps avoid payment delays if a business lead or customer requests an EIN (rather than an SSN) to close a deal or pay your invoice.
In addition, an EIN may be required by a bank to open a business checking account, and using an EIN as a sole proprietor adds credibility. The IRS requires you as a sole proprietor, to have an EIN if you:
- Have a Keogh retirement plan
- Have employees
- File excise tax returns (tobacco, alcohol, firearms)
Corporations
If your company is incorporated, you will require EIN overlooking whether it is taxed as a C Corporation or an S Corporation. An EIN is necessary if a business is an LLC or partnership that elects to be taxed as a C Corporation or S Corporation under the IRS's "check-the-box" rules.
LLCs
An EIN is required if your LLC has two or more owners, whether it accepts the default tax classification of partnership or elects to be taxed as a corporation (S corporation). For an LLC with only one owner, the IRS disregards the LLC, and all income, loss, and deductions are reported on the owner's federal income tax return.
When Is it Necessary to Change an EIN?
A new EIN is necessary when a company's ownership or structure changes. Estates and trusts file returns if their income exceeds $600.00 per year, reported on the 1041 form.
For sole proprietors, if any of the following statements apply, you will be required to get a new EIN:
- You are in a bankruptcy proceeding
- You accept partners and operate as a partnership
- You incorporate
- You buy or inherit an existing business as a sole proprietorship
- Corporations
Likewise, for any of the below statements, you will be required to get a new EIN:
- The secretary of state grants a new charter to a corporation
- You are or become the subsidiary of a corporation and use the parent's EIN
- You convert to a partnership or sole proprietorship
- A statutory merger results in the formation of a new corporation
In partnerships, you must get a new EIN if:
- Your company is integrated
- One partner takes over to operate as a sole proprietorship
- You dissolve an old partnership and form a new one
For a Limited Liability Company (LLC), a new EIN is necessary if:
- Under state law, a new LLC with more owners is formed (multi-member LLC)
- A new LLC with one owner is formed Under state law (Single Member LLC) and decides to be taxed as an S corporation and C corporation
- Under state law, a new LLC with one owner (Single Member LLC) is formed with an excise tax filing obligation for tax periods beginning or after January 1, 2008 or an employment tax filing requirement for incomes paid on or after January 1, 2009.
For Estates, the IRS recommends getting a new EIN if:
- The estate funds establish a trust (not simply a continuation of the estate)
- You represent an estate that runs a business after the owner dies
In the case of Trusts, a new EIN must be obtained when:
- Many trusts are created or granted by a single person
- A trust converts into an estate
- A living or intervivos trust becomes a testamentary trust
- A living trust ends by transferring its assets to a residual trust
Difference Between a FEIN and Tax ID Number
Both numbers are for identifying and reporting for tax purposes but are not always interchangeable. If your EIN is required, you can use your Tax ID Number or Taxpayer Identification Number (TIN); however, if your TIN is required, you cannot use an EIN in its place. To summarize:
EIN/FIEN
- An EIN identifies businesses for tax purposes.
- You must have an EIN to open a business bank account, file tax returns, and apply for business licenses if you own a business.
- EINs are only issued to form businesses and have nine digits legally.
- Used by the IRS to identify individuals or businesses.
TIN
- A category that includes Social Security Numbers (SSN), Individual Taxpayer Identification Numbers (ITIN), as well as Employer Identification Numbers (EIN).
- The IRS primarily uses these to monitor individual payments for federal income tax and other tax purposes.
- Issued by the IRS to administer tax laws.
- Used by the IRS, banks, and other businesses to identify an entity.
States Without Income Tax
Seven states have no income tax, namely:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington
- Wyoming
Meanwhile, New Hampshire solely taxes income from dividends. What state you are in will influence whether or not you need an EIN or TIN when paying taxes.
States that tax income will calculate data based on the company's structure. Employment insurance and workers' compensation insurance taxes vary by state. To find out if you need a state tax ID number to pay state taxes, visit your state's website.
Helpful Resources:
https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers
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