What is an EIN? Definition and FAQs

Table of contents

• Employer identification number (definition)
• Who needs an EIN?
• EIN vs social security number
• How do you get an EIN?
• Managing your business finances with an EIN
• FAQs on EINs

Key takeaways

• Apply for your EIN directly through the official IRS website for free, as the online application provides your number within hours and third-party services charge unnecessary fees for this free government service.
• Obtain your EIN before starting business operations, since you cannot legally hire employees, open business bank accounts, or file business taxes without this nine-digit federal tax identification number.
• Use your EIN instead of your Social Security Number for all business transactions to protect your personal identity and maintain clear separation between business and personal finances.
• Recognize that most US businesses need an EIN, especially if you plan to hire employees, operate as a corporation or partnership, or want to establish business credit and banking relationships.

What is an employer identification number?

An EIN (employer identification number) is a unique nine-digit number that identifies your business for tax purposes. It's also called a federal tax identification number.

The EIN format follows this pattern: XX-XXXXXXX (for example, 12-3456789). The IRS uses this number to distinguish between business entities and track tax reporting for each organization.

You need an EIN for several key business activities:

• Banking: Open a business bank account
• Hiring: Add employees and set up payroll services
• Financing: Apply for business loans and credit
• Tax filing: Report business income and expenses

Important things to know about EINs

Your EIN doesn’t expire, but keep in mind that tax-exempt organizations can lose their status if they don’t file required returns for three years in a row. Each EIN is unique and can only be used once, it can’t be reused for another business. If your business is sold or merged, you’ll need to notify the IRS in writing.

Who needs an EIN?

Most US businesses need an EIN to operate legally, especially if you plan to hire employees or separate business finances from personal finances.

You must get an EIN if your business meets any of these criteria:

• Has employees: Required for payroll and tax withholding
• Operates as a corporation or partnership: Mandatory for these business structures
• Withholds taxes: Beyond standard wage withholding
• Files specific tax returns: Business income tax forms

You may also want to get an EIN if you are one of the following:

• Sole proprietor: Keeps business and personal taxes separate, a critical step as research shows sole proprietors are prone to significantly underreporting their net income when finances are mixed.
• LLC owner: Protects your Social Security Number in business transactions

Get your EIN before you start business operations. You can't legally hire employees, open business bank accounts, or file business taxes without one.

EIN vs social security number

An EIN is not the same as your Social Security Number (SSN). While both are nine-digit identification numbers, they serve different purposes and have different formats.

Here are the main differences between an EIN and a Social Security number:

Format:

• EIN format: XX-XXXXXXX (12-3456789)
• SSN format: XXX-XX-XXXX (123-45-6789)

Purpose:

• EIN: Identifies your business for tax and banking purposes
• SSN: Identifies you personally for taxes and credit

When to use each:

• Use your EIN: Business bank accounts, business tax returns, hiring employees, business loans
• Use your SSN: Personal taxes, personal credit applications, personal banking

Protection benefits: Using an EIN instead of your SSN for business purposes helps protect your personal identity and keeps business and personal finances separate.

How do you get an EIN?

Getting an EIN is free through the official IRS website. Never pay third-party services for something the IRS provides at no cost.

There are several ways to apply for an EIN:

• Online application: Receive your EIN within hours (recommended), but be aware that the IRS only allows you to apply for 1 EIN per day per responsible party.
• Fax application: According to the IRS, if you provide a fax number, you can receive your EIN back in 4 business days.

Elements to consider when applying for an EIN

Here are some key things to consider before you apply for an EIN

EIN eligibility

Your business must be located in the US or US territories to qualify for an EIN.

Responsible party

Choose who will be the responsible party – typically the business owner or someone authorized to control the business. This person's information will be permanently linked to the EIN.

Information you'll need for your application

Gather this information before filling out your application:

• Business structure: Corporation, LLC, partnership, or sole proprietorship
• Application reason: New business, hired employees, banking purposes, etc.
• Industry type: Your business's primary activity
• Start date: When your business began or was purchased

Managing your business finances with an EIN

Your EIN is the foundation of your business's financial identity. Once you have your EIN, you can open business bank accounts and set up payroll, but the IRS notes you may have to wait up to 2 weeks before you can e-file a tax return or make electronic tax payments.

Next steps after getting your EIN:

• Open a business bank account: Keep business and personal money separate
• Set up accounting software: Track income, expenses, and tax obligations
• Establish business credit: Build your company's credit history
• Prepare for tax season: Organize financial records from day one

Xero accounting software works with your business accounts, so you can manage finances, track expenses, and stay ready for tax time. With features like automated bank reconciliation and payroll processing, Xero helps you manage your business finances efficiently.

Ready to streamline your business finances? Try Xero accounting software for free and see how simple managing your business finances can be.

FAQs on EINs

Here are some common questions about EINs.

How do I find my EIN number?

If you have misplaced your EIN, check your previous tax returns, business loan applications, or your original EIN confirmation letter from the IRS. If you still cannot find it, call the IRS Business & Specialty Tax Line to recover it.

What is the difference between an LLC and an EIN?

A limited liability company (LLC) is a legal business structure that protects your personal assets from business debts. An employer identification number (EIN) is a federal tax identification number.

While they are different, an LLC with employees or that files certain excise tax returns must have an EIN.

What is an EIN number used for?

Your EIN is essential for many business activities. You use it to pay federal taxes, hire and pay employees, open a business bank account, and apply for business licenses and permits. The IRS uses your EIN to identify your business.