What is an EIN number?

Employer identification number (definition)

An EIN (employer identification number) identifies a business entity for tax purposes. It’s also known as a federal tax identification number.

The EIN is a unique number that helps the Internal Revenue Service (IRS) distinguish between business entities and start a record of the organization for tax reporting. Each EIN is a nine-digit sequence, typically formatted as XX-XXXXXXX.

A business also needs an EIN to open a business bank account, apply for loans, hire employees, or set up payroll services.

An EIN doesn’t expire and can’t be reused if a business entity needs to be dissolved. In other circumstances, such as a business sale or merger, the responsible party (see below) must send a letter to the IRS with business details and the reason for the change or cancellation.

Who needs an EIN?

Most businesses in the US need an EIN to operate legally. You need an EIN if your organization:

  • has employees
  • operates as a corporation or partnership
  • withholds taxes from income for more than wages, or
  • files certain tax returns

However, all business entity setups, like sole proprietors or limited liability companies (LLCs), can apply for and be issued an EIN. This benefits single-operator companies that want to keep personal and business taxes separate.

If your business needs an EIN, you must get one before the business starts operating as you can’t legally hire employees, apply for loans, or file taxes without one.

How do you get an EIN?

You can apply for an EIN for free through the IRS website. The website gives you more information on whether your type of business needs an EIN, and the steps to fill out the online application and submit the documentation.

After you submit an online application, the EIN will typically be issued within a few hours. You can also apply by fax, but you may have to wait for a few weeks for your number.

Before you apply, you’ll need to decide two things:

  • Whether you need an EIN – an EIN is only required for businesses located in the US or any US territories.
  • Who your “responsible party” is – a responsible party is usually someone who owns or controls the business, or an individual who has been authorized to have control.

For your application, you should prepare to answer questions on:

  • the type of business entity
  • why you’re applying
  • the business’s principal industry
  • the business’s start or purchase date

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This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.