If you’re a small business owner, or are otherwise self-employed, chances are you’ve heard of an EIN or Employer Identification Number. You may not be clear, however, on exactly what an EIN is, whether you need one or how to go about getting a free EIN if you do.
That’s what we’re here for. Let’s walk through the basics, starting with what an EIN is.
What is an Employer Identification Number (EIN)?
An EIN is a lot like a Social Security number, but it’s for business entities, specifically those that are incorporated. But even sole proprietors can need an EIN, particularly those with employees (though you don’t necessarily have to have employees to need an EIN. More on that in a minute).
An EIN has the same nine digits as a Social Security number and is assigned by the IRS for the purpose of your business’ tax filing and reporting.
Now, you may be asking “why can’t I just use my Social Security number, then?”
Do I Need an EIN?
If you’re self-employed and don’t have any employees, you may not have any need for an EIN. However, you probably already know the importance of keeping your personal and business finances separated, and an EIN is just another way to help you do that.
For example, some banks require an EIN to open a business checking account or apply for a business loan. Even if you’re a sole proprietor with no employees, if you want to separate your business banking account or apply for a business loan now or in the near future, getting an EIN squared away can be a good move.
Related: What is a DUNS Number?
In general, if you are operating as a corporation, partnership or LLC, you’ll probably need an EIN. It’s a good idea to talk to your accountant to determine what exactly is required of your business.
Likewise, as a sole proprietor, you’ll need an EIN if you:
- have employees
- offer them a pension, retirement or profit-sharing plan,
- inherit or purchase a business that you operate as a sole proprietorship
- incorporate, form a partnership or an LLC
- have clients for which you must submit a Form W-9, or
- file for bankruptcy as a business
The IRS goes into even more detail on the IRS.gov website, noting that a business entity needs an EIN if it has:
- started a new business
- hired or will hire employees, including household employees
- opened a bank account that requires an EIN for banking purposes
- changed the legal character or ownership of your organization (for example, you incorporate a sole proprietorship or form a partnership)
- purchased a going business
- created a trust
- created a pension plan as a plan administrator
- are a foreign person and need an EIN to comply with IRS withholding regulations
- are a withholding agent for taxes on non-wage income paid to an alien (such as an individual, a corporation, or a partnership)
- are a state or local agency
- are a federal government unit or agency
- formed a corporation
- formed a partnership
- administer an estate formed as a result of a person’s death
- represent an estate that operates a business after the owner’s death.
Who Qualifies for an EIN?
Anyone whose business is located in the United States or a U.S. territory and has an existing valid taxpayer ID, such as a Social Security number, Individual Taxpayer Identification Number or previous EIN, can apply for a new EIN.
Instantly see your top options for business loans and credit cards based your business's needs using Nav's MatchFactor technology. See my match scores for free.
How to Get a Free EIN Number
It’s a pretty simple process. To start, you’ll want to visit the IRS website and not a third-party website that claims to help you apply for an EIN. You really won’t need help with this process and you definitely don’t want to pay someone to help you do it.
The online application process is the IRS’s preferred method. When you get to the IRS’s EIN application site, you’ll be prompted to fill in the necessary information, which will be verified as you go through the process. Once successfully completed, your EIN will be issued immediately.
While the online application is the IRS’s preferred application method (and is definitely the quickest), you don’t have to apply online. You can also apply via fax, mail, or, if you are an international applicant, over the phone. Details for each of these methods are available on the IRS website. You’ll need Form SS-4 for each of these methods.
The IRS will then review your application and assign a new EIN to your business.
Regardless of which application method you choose, you’ll receive a Form SS-4 Notice verifying that your business has been assigned an EIN. Be sure to hang onto that notice so you can use it to verify your EIN whenever necessary. And here’s what to do if you ever lose your SS-4 Form Notice.