EIN: What Is It and Why Do I Need One?

What Is an EIN?

An EIN is a nine-digit number, also known as a federal employer identification number, federal tax ID, federal tax ID number, tax ID number, or taxpayer ID number, used to identify businesses and certain other entities, described more fully below. While Social Security Numbers also have nine digits, EINs are easy to spot because they are formatted differently. Instead of using an xxx-xx-xxxx pattern, EINs use an xx-xxxxxxx pattern. An EIN is used for business tax reporting and tax filings, and is unique to the same business entity. A state tax ID or state tax ID number are different from a federal EIN and are used for state tax purposes. Using an EIN instead of a personal Social Security Number can help protect against identity theft and keep personal finances separate from business finances. Each entity that needs an EIN should have only one EIN. The EIN remains the same number for the life of the business entity unless a change is required by the IRS.

Who Needs an EIN?

Many businesses, including corporations, partnerships, LLCs, and nonprofit organizations, are required to obtain an EIN for business tax purposes, to file taxes, and to open a business account.

There are a variety of uses for EINs. Common uses include the following:

• Corporations – As a corporation is legally a separate entity and responsible for its own obligations and debts, it needs its own EIN. The company’s principal officer or person responsible is typically the one who applies for the EIN, using their personal taxpayer identification number. An existing corporation may also be required to obtain a new EIN in certain circumstances, including when the business’ name changes, the business becomes a subsidiary of another corporation, the business structure changes to that of a sole proprietorship or partnership, or a new corporate charter is created.

• Partnerships – By definition, a partnership involves two or more partners joining together for a business venture. Most partnerships require EINs, except certain joint undertakings for the sole purpose of sharing expenses. Non-resident aliens and government entities may also need to obtain an EIN for certain tax or compliance reasons. Existing partnerships may need to apply for and obtain a new EIN when one partner takes over and establishes a sole proprietorship, if the partnership decides to incorporate, or if the existing partnership is dissolved and a new partnership is formed.

• Limited Liability Companies (LLCs) – Many LLCs must obtain EINs. If there are two or more members (owners), the business can choose to be recognized as either a partnership or a corporation, but it still must obtain its own EIN. The owner of a single-member LLC may not need to obtain an EIN unless the business has one or more employees or the business is declaring bankruptcy. Self-employed individuals who operate as single-member LLCs may also need an EIN for certain business activities, such as opening a business account or managing business tax obligations.

• Sole proprietorships – Most sole proprietors do not need to obtain an EIN for their businesses; however, they may choose to do so, as discussed more fully below.

• Trusts – Trustees or other fiduciaries may need to apply for an EIN for certain types of trusts. The “trusts” umbrella for EIN purposes also includes Ginnie Mae (GNMA) pools, Fannie Mae (FNMA) pools, custodianships, guardianships, receiverships, conservatorships, and escrow accounts. Irrevocable trusts, including testamentary trusts, need their own EINs because they are separate, legal entities once created and funded.

• Estates of deceased persons – When someone dies, their estate may need an EIN. Most often, this is required when there are assets that need to be probated before being distributed. The estate itself is responsible for the deceased person’s debts and obligations. The person applying for and using the EIN for an estate is considered a fiduciary, such as a personal representative or executor appointed by the courts to administer and distribute the deceased person’s estate.

• Employee benefit plans – Employee benefit plans, including health and retirement plans, need their own EINs. This includes single-participant Keogh and Solo 401(k) plans, profit-sharing plans, SIMPLE IRAs, SEP IRAs, and other employer-sponsored benefit plans. Establishing a Keogh plan requires an EIN.

• Personal service corporations – If your business’ primary activity was performing personal services by the owners, such as accounting, consulting, architecture, engineering, actuarial science, health, law, or the performing arts, then you may be considered a personal service corporation that needs its own EIN for tax purposes.

• Tax-exempt organizations – All nonprofit organizations are required to obtain an EIN before applying for 501(c)(3) tax-exempt status.

• Household employers and their agents – If you are employing someone to help in your home, you are considered a household employer and likely need an EIN to report payroll tax withholding. Similarly, if you are acting as an agent for a household employer, you can apply for an EIN for that person.

• Individual bankruptcy – When individuals file for bankruptcy under Chapter 7 or Chapter 11 of the Bankruptcy Code, the bankruptcy estate that is created is its own legal, taxable entity that needs its own EIN. Married spouses filing a joint bankruptcy petition will each need an EIN.

• Real estate mortgage investment conduits (REMICs) – REMICs (organizations that hold pools of mortgages) are treated as partnerships by the IRS. As such, they need their own EIN.

Tax preparers may use a preparer taxpayer identification number, and the IRS specialty tax line can assist with questions about EINs.

Why Might You Need an EIN?

You may need to obtain an EIN for a number of reasons, including business, estate, or trust banking, and hiring employees. Businesses also need EINs when they are required to file employment tax returns; excise tax returns; or alcohol, tobacco, and firearms returns. When you apply online, you can receive your EIN immediately, and the IRS will send you an EIN confirmation notice as proof of your new number. To obtain your EIN, you must submit a completed form to the IRS. The following are reasons why you may need an EIN:

• Banking and finance – In many cases, banks and credit unions require a valid EIN in order to open a business account for any type of business, an estate, or non-grantor trusts. An EIN is also often needed to file taxes and comply with business tax regulations. Having an EIN may also be helpful for a business seeking to obtain financing or working capital.

• Employees – If you are hiring employees (whether one or many), you will need an EIN. This is the number the IRS will use to track your payroll tax remittances. Most businesses need an EIN to file tax filings and manage payroll. Business owners establishing a form of business other than a sole proprietorship will also need an EIN, regardless of whether or not the business will have any employees. Your EIN will be used to track your business income taxes.

• Self-employed retirement plans – A self-employed person who decides to establish a Keogh or Solo 401(k) plan will need to obtain an EIN in order to facilitate those types of plans’ federal tax treatment. A Keogh plan specifically requires an EIN for tax purposes.

• Situations where sole proprietors may need an EIN – Sole proprietors who are filing for bankruptcy for their business will need an EIN, as will those who purchase or inherit an existing business that they intend to run as a sole proprietorship going forward. Using an EIN instead of a personal Social Security Number can help protect against identity theft and keep personal finances separate from business finances.

When Is an EIN Unnecessary?

While EINs are necessary for corporations and partnerships, most sole proprietorships actually do not need them. Sole proprietors and single-member LLCs often use their personal Social Security Number for business tax purposes, but may choose to obtain an EIN to help protect against identity theft and to keep personal finances separate from business finances.

Similarly, single-member LLCs do not need an EIN either, unless the LLC is required to file excise tax returns or employment tax returns. When an EIN is not required, the LLC is said to be a “disregarded entity” because the business’ income and expenses are reported on the sole owner’s tax returns, so a separate tax return is not necessary.

Although “trusts” is one of the common types of entities that obtain EINs, you will probably not need an EIN if you have created a revocable living trust. That is because these types of trusts typically use the grantor’s Social Security Number during his or her lifetime. When the grantor dies, his or her revocable living trust will become irrevocable and will require an EIN at that time.

Why You May Want an EIN Even If It Is Not Required

Even though most sole proprietors will not need to obtain an EIN, it can be beneficial to obtain one in some cases.

First, sole proprietors who act as independent contractors can help protect their identities by obtaining and using an EIN with their clients, rather than providing their own Social Security Numbers. Using an EIN instead of a personal Social Security Number can help reduce the risk of identity theft and keep personal finances separate from business finances.

Having an EIN may also make an independent contractor or sole proprietor appear more professional to potential clients. Some sole proprietors find this helps them land and solidify client relationships more easily.

Information Needed to Obtain an EIN

When you apply for an EIN, you will need to provide key details about your business and responsible party, and have certain information available at the time of the application. You must submit a completed form to the IRS to obtain your EIN. That information includes:

• the legal name of the entity that needs the EIN, and the trade name (if different);

• the person authorized to act for that entity (this may be a corporate officer, a partner, an executor, a trustee, etc.);

• the mailing addresses for both the legal entity and the person authorized to request the EIN. The actual street address of the business must be provided, not just a mailing or P.O. box address;

• the responsible party’s name and that person’s (or entity’s) Social Security Number, Tax Identification Number, or existing EIN. The IRS has stated that this information must be provided for the true principal officer, general partner, trustor, or owner who has authority and responsibility for managing, controlling, or directing the legal entity’s assets and funds. The company’s principal officer or person responsible must provide their personal taxpayer identification number when applying for an EIN;

• the type of entity (i.e. corporation, partnership, LLC, trust, estate, etc.);

• the number of LLC members, if requesting an EIN for an LLC;

• the state or foreign country where the company is incorporated, if requesting an EIN for a corporation;

• the reason you are applying for an EIN. You may have several reasons; however, you must choose one. Common reasons include starting a new business, hiring employees, banking purposes, creating a new trust, creating a new pension plan, changing the type of business entity, and purchasing an existing business (be prepared to also provide the date you purchased or acquired the business);

• the closing month of your accounting year. For the majority of businesses and others requesting EINs, a calendar year is used. However, check with your tax professional to determine whether it makes sense to use a different fiscal year;

• an estimate of the highest number of employees you expect to have in the next 12 months after applying (this may be zero);

• the first day you paid wages to employees, if applicable;

• the principal business activity you are engaged in. If you sell specific products, perform specific services, or produce specific products, be prepared to describe them;

• the applicant’s name, title (if applicable), telephone number, and signature; and

• the third-party nominee’s contact information if you authorize one to act on your behalf.

If you choose to submit your EIN application by fax, you must send the completed Form SS-4 to the appropriate IRS fax number, which can be found on the IRS website.

Eligibility Criteria

To qualify for an Employer Identification Number (EIN), your business entity must be legally formed and recognized by the state in which it operates. This includes a wide range of organizations, such as sole proprietorships, corporations, partnerships, limited liability companies (LLCs), and nonprofit organizations. The Internal Revenue Service (IRS) issues EINs to these business entities for federal tax purposes, including tax reporting and employment taxes.

A key requirement is that the business entity must have a responsible party—typically a principal officer, owner, or general partner—who has a valid Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). This responsible party is the individual who controls, manages, or directs the business and its assets. When you apply for an EIN, you will need to provide this identification number to the IRS.

It is important to remember that each business entity can only have one EIN, which is used to identify the organization for all federal tax and employment purposes. Whether you are forming a new corporation, starting a sole proprietorship, or launching a nonprofit organization, ensuring your business is legally formed and has a designated responsible party is essential before you apply for an EIN.

Applying for Another Entity's EIN

If you are acting as a third-party nominee in obtaining an EIN for someone else, the IRS requires you to maintain certain information in your files. You must get signed authorization from the taxpayer (the person requesting a new EIN) on IRS Form SS-4. You must submit a completed Form SS-4 to the IRS, and if a tax professional is assisting, the preparer taxpayer identification number may be required.

After the application is processed, the IRS will send an EIN confirmation notice as proof of the new EIN.

Receiving and Using an EIN

Once your EIN is issued by the IRS, your business entity can begin using it right away for most business activities. This includes opening a business bank account, applying for business licenses, and filing tax returns. In some cases, certain agencies or financial institutions may require you to wait up to two weeks after receiving your EIN before using it for specific purposes.

The IRS will mail an official EIN confirmation notice to the address provided in your application. It is important to keep this EIN confirmation letter in a safe place, as there is no simple online method to retrieve your EIN if it is lost. If you misplace your EIN, you must contact the IRS directly to recover it—do not apply for a new EIN, as each business entity should have only one EIN for its lifetime.

Notifying the IRS of Changes

After you have obtained an EIN, you have an ongoing obligation to notify the IRS when certain events occur. For example, if your business’ address or name changes after your EIN has been issued, then you will need to notify the IRS in writing, signed by an authorized person for your legal entity. You must also ensure that all tax filings are up to date when notifying the IRS of any changes.

Similarly, a corporation wishing to be taxed as an S corporation must file Form 2553, and an LLC that elects on the EIN application to be taxed as an S corporation must file an additional form—Form 8832—with the IRS.

Finally, if your business closes or an estate or trust has been fully administered and distributed, you can notify the IRS so they can close the tax account associated with that EIN. Each EIN is unique to the same business entity and cannot be transferred to another entity.

A final word of caution: Business owners and other responsible parties should ensure that their EINs are used only for business purposes, and not in place of the owner’s own Social Security Number. If you have questions about EIN changes or closures, the IRS specialty tax line can assist you.

Employer Identification Numbers and Taxes

An Employer Identification Number (EIN) is a unique nine-digit number assigned by the IRS to identify a business entity for federal tax purposes. This federal tax identification number is essential for managing your business’s tax obligations, including reporting income, deductions, and employment taxes. The EIN serves as the primary tax identification number for businesses, helping to keep business finances separate from personal finances and ensuring accurate tax reporting.

Businesses use their EIN to open business bank accounts, file tax returns, and comply with federal tax regulations. The IRS relies on the EIN to track and verify a business entity’s compliance with employment, licensing, and permit requirements. Without an EIN, businesses may face penalties, audits, or legal issues due to non-compliance with tax laws.

Whether you are hiring employees, opening a business bank account, or applying for business licenses, your EIN is a critical part of your business’s legal and financial identity. It helps streamline tax reporting, supports proper record-keeping, and ensures your business meets all federal tax requirements. For any business entity, obtaining and using an EIN is a fundamental step toward maintaining good standing with the IRS and other government agencies.

Closing an EIN

Closing an Employer Identification Number (EIN) is an important step for any business entity that is ceasing operations or no longer needs its federal tax identification number. An EIN is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to identify business entities for tax reporting purposes. When your business has fulfilled all its tax obligations and is ready to close, there are several steps you must take to properly deactivate your EIN.

First, ensure that all required tax returns have been filed and any outstanding business taxes or employment taxes are paid in full. This includes submitting final tax returns for your business, trust, or estate, and making sure all payroll and other tax obligations are settled. Next, close all business bank accounts and credit lines associated with your EIN, as financial institutions require an active EIN for business accounts. You should also cancel any business licenses or permits and notify state and local government agencies that your business is closing.

To request the deactivation of your Employer Identification Number (EIN), you must send a written request to the IRS. This request should include your business’s legal name, mailing address, EIN, and a brief explanation of why you are closing the account. The IRS will review your request and, if all tax reporting requirements have been met, will deactivate the EIN for tax purposes. Keep in mind that while the IRS can deactivate an EIN, it does not completely cancel or reuse the number; the EIN remains associated with your business entity in IRS records.

It is important to note that closing an EIN does not automatically dissolve your business entity. You must still follow your state’s procedures for dissolving a corporation, limited liability company, or other business structure, which may include filing articles of dissolution and notifying creditors. Only after completing both the IRS and state requirements is your business fully closed.

In some cases, you may need to apply for a new EIN if your business structure or ownership changes significantly. For example, if a sole proprietorship incorporates or forms a partnership, or if a partnership is taken over by a single owner, a new EIN is required. However, changes such as updating your business name or mailing address do not require a new EIN—simply notify the IRS of the change.

Applying for an EIN is a straightforward process that can be completed through the IRS website using the online application process, by phone, or by mail. The responsible party—typically the person who manages or controls the business entity—must provide their Social Security Number or individual taxpayer identification number (ITIN) on the EIN application. (An individual tax identification number is used by individuals who do not have a Social Security Number.) This identification number is essential for tax reporting and compliance.

Nonprofit organizations must obtain an EIN to apply for tax-exempt status, and sole proprietors may need an EIN to hire employees or open a business bank account, depending on their circumstances. Financial institutions require an EIN to open business accounts, and the EIN is used on tax forms and for all tax reporting purposes.

In summary, closing an EIN involves more than just stopping business operations. You must ensure all tax obligations are met, close business accounts, cancel business licenses, and notify the IRS and state authorities. If your business structure changes, you may need to apply for a new EIN. For more information or to apply for an EIN, visit the IRS website or consult with a tax professional to ensure compliance with all federal and state requirements.

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