What’s the Story on Employer ID Numbers?
Employer Identification Number (EIN) on a clipboard.
If you plan to hire employees, operate as a corporation or partnership, or file specific types of tax returns — such as employment or excise or for industries such as alcohol and tobacco — you’ll need an EIN.
You’ll also need an EIN if your business uses a Keogh retirement plan or if you’re working with certain types of organizations that require tax identification for compliance.
How to apply for an EIN
The IRS offers an online tool to walk you through the application process. It asks for basic information such as your name, Social Security or taxpayer ID number, and business structure.
If you’re applying on behalf of someone else, you’ll need written authorization. Once your information is verified, your EIN is issued right away. It’s free to apply, so be cautious of websites that charge a fee for this service — they’re unnecessary.
If your business changes, your EIN might too
You may need a new EIN if your business undergoes significant changes, such as a shift in ownership or structure. The IRS website provides guidance on whether your specific situation requires a new number.
In some cases, someone else might apply for an EIN on your behalf — legitimately or otherwise. If you receive notification about an EIN you didn’t request, first check to make sure it wasn’t submitted for valid business reasons connected to you.
If it was not, the IRS recommends reporting it using the Business Identity Theft Affidavit. If your EIN is stolen, there’s a process for reporting business identity theft through the IRS.
What about state tax IDs?
Depending on where your business operates, you might also need a state tax ID number. This number helps you pay state-level taxes and can also offer added protection from identity theft, especially for sole proprietors.
Every state has different requirements, so it’s worth checking your state’s official site to see what applies to you. States vary widely in their tax rules — some have no income tax at all, while others only tax dividend income.
Business structure and number of employees can also influence your state tax obligations, including things such as unemployment insurance and workers’ compensation. Understanding these differences early on can help you better plan for startup costs and choose the right structure for your goals.
EINs are for businesses of all sizes
Whether you’re running a one-person operation or a large corporation, you’re eligible for an EIN. Unlike Social Security numbers, EINs aren’t considered sensitive information. Many businesses include them in public records, filings, and publications.
Filing the paperwork
To apply, fill out Form SS-4, which is available on the IRS website. An EIN helps keep your personal and business finances separate — something that’s especially helpful for freelancers or anyone who needs to report income for tax purposes when hired as an independent contractor.
On top of that, an EIN adds a layer of protection for your personal information. If you decide to close your business or determine you don’t need the number, the IRS can deactivate your business account. The EIN will remain on record, but your account itself will be suspended.
