What is an Employer Identification Number (EIN) and do I need one?

Content

I’m in the process of setting up my new small business and I keep hearing references to an “EIN.” Since I’m currently operating as a sole proprietor with no employees, I’m trying to understand if forming a Limited Liability Company (LLC) changes my requirement for one. Specifically, what exactly is an Employer Identification Number (EIN), and do I actually need to obtain one for my LLC—even if I don’t plan to hire employees or immediately open a business bank account? Also, if I do apply for an EIN, what are the primary benefits beyond just being able to hire employees later down the line?

An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is a unique nine-digit number assigned by the U.S. Internal Revenue Service (IRS) to business entities for tax purposes. It functions similarly to a Social Security Number (SSN) but is used exclusively for business-related tax filing and identification. The format follows the pattern 00–0000000, where the first two digits indicate the issuing campus (e.g., 01–14 for Andover, 15–26 for Atlanta, etc.).

When You Need an EIN:

You must obtain an EIN if:

  1. You have employees: Hiring staff requires an EIN for payroll taxes and Form W-2 filings.
  2. Operate as a corporation or partnership: Legally required to report income and file business-specific returns (e.g., Form 1120 for corporations).
  3. Form an LLC, partnership, trust, or estate: Legally mandated to distinguish the entity from personal finances.
  4. File certain business tax returns: Including excise, employment, or alcohol/tobacco returns.
  5. Open a business bank account: Most financial institutions require an EIN for commercial accounts.
  6. Obtain business licenses or permits: State/local governments often mandate an EIN for legal operations.
  7. Pay business taxes quarterly: EINs are essential for remitting federal/state taxes.
See also  What is the estimated total number of beauty salons in the USA as of 2023?

When an EIN Is Optional but Beneficial:

You may want an EIN if:

  • You operate a sole proprietorship without employees: Using an EIN instead of your SSN separates business and personal finances, enhancing privacy.
  • You form a single-member LLC: While optional, an EIN simplifies taxes, prevents SSN exposure, and supports business credibility.
  • You file excise taxes, nonprofit returns, or estates/trusts.
  • You plan to hire employees in the future.

How to Obtain an EIN:

  • Online via IRS portal: The fastest method (immediate issuance) for entities with principal locations in the U.S. or U.S. territories. Visit the IRS EIN Assistant.
  • IRS Form SS-4: Mail or fax the completed form for non-U.S. entities or if online is unavailable. Processing takes 4–6 weeks.
  • Phone: Call the IRS Business & Specialty Tax Line (for international applicants only; requires a TIN).
  • Cost: Free. The IRS does not charge for EIN issuance.

Key Notes:

  • Validity: EINs are permanent and never expire unless business ownership or structure changes.
  • Dependency: EINs are independent of state/local tax IDs; additional registrations may be required.
  • Fraud Prevention: Never share EINs with unverified parties to avoid identity theft.

Always verify requirements with the IRS or a tax professional, as specific rules may vary by business type, location, or industry.

Published: August 27, 2025