Employer Identification Number (EIN) - Explained
What is an EIN?
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Table of ContentsWhat is an Employer Identification Numbers (EIN)?What is a State Employer Identification Number? How is the Employer Identification Number Used?Who Issues an EIN? When Do You Need a New EIN?
What is an Employer Identification Numbers (EIN)?
The employer identification number is the method by which businesses transmit tax information to the State and Federal Governments.
The Federal Employer Identification Number (FEIN) is issued by the Internal Revenue Service (IRS).
Your States Department of Revenue may use the same number (State EIN) or issue a similar identification number.
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What is a State Employer Identification Number?
The business founders will reach out to the state taxing authority to acquire a state EIN once the Federal EIN is issued.
How is the Employer Identification Number Used?
The Employer Identification Number (EIN) is used to identify the business entity or employer in the country.
Think of it as a Social Security Number (SSN) (which is issued to check the identity of residents of USA) but for businesses.
Who Issues an EIN?
The Federal EIN is issued by Internal Revenue Service (IRS). It is a nine-digit unique codes.
Businesses generally obtain an EIN at the time of filing for business entity status in the state. They either visit the IRS website or call or fax the IRS.
When Do You Need a New EIN?
An Employer Identification Number is required for all forms of business including partnerships, corporations, limited liability companies, etc.
A sole proprietorship without employees may file taxes under the business owners social security number.
The EIN becomes mandatory when the business acquires employees and is required to withhold payroll taxes on those individuals.
If you want to change your business entity status, you must petition for a new EIN.
Without an EIN, the business cannot legally pay (or without payroll taxes) their employees, nor can they file income tax returns.
Furthermore, a business without an EIN cannot open an account with a bank or brokerage house.
Note: Obtaining a business EIN is also important for Establishing Business Credit.