What Is an EIN and Why Your Business Needs One

An Employer Identification Number (EIN) is a nine-digit IRS identifier for your business, similar to a Social Security Number for individuals. You’ll need one to hire employees, form a legal entity, or open a business bank account. Understanding when and why to get an EIN helps you start your business on the right track.

What Is an EIN?

An Employer Identification Number (EIN) is a unique nine-digit number issued by the IRS to identify a business entity. Think of it as your business's Social Security Number. The IRS uses this number to track your business's tax obligations, from payroll taxes to business income reporting. You don’t need employees to require an EIN; many business structures and activities need one regardless of staff.

Is an EIN the Same As Your SSN?

No, an EIN and Social Security Number serve different purposes. Your SSN identifies you as an individual taxpayer, while an EIN identifies your business entity. Sole proprietors without employees can often use an SSN, but an EIN offers better privacy and separates personal and business finances. As your business grows or changes structure, an EIN becomes essential for managing taxes.

How Does an EIN Work?

Your EIN serves multiple functions once you receive it. The IRS uses this number to identify your business across all federal tax-related activities. Here's how you'll use it:

• Filing business tax returns: Your EIN appears on all federal tax forms, including income tax returns, payroll tax filings, and quarterly estimated tax payments.
• Opening business bank accounts: Financial institutions require an EIN to set up business checking accounts and establish lines of credit.
• Hiring employees: You must report employee wages and withhold taxes using your EIN on forms like W-2s and 941s.
• Establishing business credit: Vendors and lenders use your EIN to extend credit and track your business's payment history.
• Applying for business licenses: State and local agencies often require an EIN when processing license applications.

Applying for an EIN through the IRS is completely free. You can complete the online application and receive your number immediately during their regular business hours.

Who Needs an EIN?

Determining whether you need an EIN depends on your business structure and activities. The IRS requires an EIN if your business meets any of these criteria:

• You have employees: Any business with employees must obtain an EIN to report wages and remit payroll taxes.
• You operate as a partnership or corporation: These business structures require an EIN regardless of whether they have employees.
• You formed a limited liability company (LLC): Most LLCs need an EIN, though single-member LLCs without employees may use the owner's SSN.
• You file employment, excise, or alcohol, tobacco, and firearms tax returns: These specific tax obligations require an EIN.
• You withhold taxes on income paid to non-resident aliens: Businesses making these payments must have an EIN.
• You manage certain trusts, estates, or retirement plans: These entities need separate identification from the individuals involved.

How Do You Know if You Need an EIN?

If you're starting a new business, ask yourself these questions:

• Will you hire employees now or in the near future?
• Are you forming an LLC, partnership, or corporation?
• Do you want to separate your personal and business finances?

If you answered yes to any of these, you should apply for an EIN.

Even if you're not required to have an EIN for federal tax purposes, you might need one for banking or state tax requirements. Many banks require an EIN to open a business account, and some states require one for sales tax registration.

How To Apply for an EIN

The fastest way to get an EIN is online through the IRS EIN application page. You’ll receive your number immediately after completing the form.

• Apply Online: Visit the IRS EIN application page and complete the form in one session. You'll receive your EIN immediately after approval. The online application is available during specific hours on business days, and you can apply for only one EIN per day per responsible party.
• Apply by Fax: Complete Form SS-4 and submit it according to the IRS fax instructions. Processing takes about 4 business days.
• Apply by Mail: Mail your completed Form SS-4 to the address listed on the IRS application page. Processing by mail takes approximately four weeks.
• International Applicants: If your principal business location is outside the United States, visit the IRS international applicant information page for phone, fax, and mail options.

Before you apply, register your business with your state if forming an LLC, corporation, or partnership. You’ll need the SSN or ITIN of the responsible party who controls the business.

The Importance of an EIN for Business Success

An EIN is more than an IRS requirement — it’s essential for compliance, credibility, and growth.

• Legal Compliance: Required for payroll taxes, income reporting, and certain business structures. Operating without one can lead to penalties.
• Financial Credibility: Banks and vendors use your EIN to verify business identity and credit history, making it easier to open accounts and secure financing.
• Business Growth: Needed to hire employees, expand locations, and transition from sole proprietorship to more complex structures.

Cómo puede ayudar Paychex

Getting an EIN is simple, but managing payroll, taxes, and HR afterward can be complex. Paychex offers solutions to simplify these tasks:

• Servicios de nómina: Automate tax calculations and filings to reduce errors.
• Plataforma Paychex Flex®: Streamline onboarding, payroll, and benefits administration.
• Consultoría de recursos humanos: Expert guidance on compliance with federal and state regulations.

With 50+ years of experience, Paychex helps you stay compliant and focus on growing your business. Talk to a Paychex specialist today.