Most businesses with employees need a federal employer identification number.
- A federal tax identification number (FEIN) is required for businesses to secure a business license, file a tax return, and access a wide range of necessary services.
- Sole proprietors and independent contractors who have no employees don’t need a FEIN.
- Under certain circumstances, a business might need to change its FEIN.
- This article is for entrepreneurs and small business owners who need information about acquiring a federal tax identification number.
Before you can open a bank account, apply for a business license, or file a tax return, you will be required to obtain a federal employer identification number (FEIN) for your business. Read on to learn what a FEIN is and how to get one.
What is a federal tax identification number (FEIN)?
A federal tax identification number, also known as a FEIN or an employer identification number (EIN), is issued to entities that do business in the United States. The FEIN is a unique nine-digit corporate ID number that works the same way a Social Security number does for individuals. The tax number for individuals, also referred to as a tax identification number or TIN, is an individual’s Social Security number. It’s easy to get the two types of numbers mixed up. Just remember that one is for business entities, and one is for individuals.
A FEIN is a way for the IRS and other government entities to identify and track business entities’ tax and financial activities. It’s required to file tax returns, as well as to set up retirement accounts and health accounts to offer medical and dental benefits to employees, among other uses.
Who needs a FEIN?
Not every small business entity needs a FEIN, but many do:
- Any business with employees
- Any business that operates as a corporation or a partnership
- Any business that pays employment, alcohol, tobacco or firearms tax returns
Businesses that typically do not need a FEIN include the following:
- Those that operate a sole proprietor
- Those that do not have employees
- Those that are not required to pay certain taxes as indicated above
If you start your business as a sole proprietor and use your Social Security number as opposed to a FEIN, you may discover later that you need one – mainly, if you plan to expand or restructure your business to a corporation and/or hire employees. In fact, if you form a corporation later, you will need a FEIN. A FEIN is a very important part of your business data when you’re filing local, state and federal taxes.
In what other instances is a FEIN needed?
You also need a FEIN when your organization pays taxes of any kind and when you issue employee-related tax forms, such as W-2s. Employers are required to issue W-2s to their employees at the end of each tax year. All payroll reports contain your FEIN – including monthly, quarterly, and annual tax forms, all of which can be filed by a professional payroll processing company.
You will also have to issue a 1099 to every independent contractor you paid at least $600 to during the tax year, and your FEIN will also be needed on that form.
Not only will your business need a FEIN for various purposes, but your employees and outside contractors will also need it when they prepare their tax returns.
How can I get a FEIN?
1. Determine your eligibility for a FEIN.
The two indicators that you’re eligible for a FEIN are if your main business is located within the U.S. or its territories, and if you have a valid Social Security number or another form of tax identification, such as another FEIN.
Having your main business in the U.S. or its territories means that the majority of your income as a business owner comes from a practice residing in this area. Therefore, even if you have another business outside the U.S., you may still be eligible for a FEIN. The person applying for a FEIN does not need to be the business owner, but they must have firsthand knowledge of and dealings with the company’s finances. A secretary or administrative assistant can also apply for a FEIN; they can simply sign Form SS-4 and provide their information in the third-party designee section.
2. Collect the necessary information for the IRS.
The IRS requires the information in Form SS-4: Application for Employer Identification Number. First, you’ll need to provide a physical address for your business (with a location in the U.S.) to receive a FEIN.
On the application form, you’ll need to state the legal structure of your business, such as LLC or corporation. If your business is an LLC, you must list the members of the organization. You need to further state the type of business you conduct.
This is some additional information you’ll need when applying:
- The reason you’re applying for a FEIN. As an example, you may be launching a new business or have restructured your existing business.
- The specific date you began or acquired your business.
- The industry your business is in or that you retain business in, such as retail or consulting, as well as the product or service description.
- When employee wages were first paid through your business.
- The date of the end of your fiscal or accounting year. This is typically the month of December if you pay your taxes through the calendar year.
- The highest estimate of employees you plan to hire in the coming year.
3. Apply for a FEIN online, by phone or through the mail.
If you are required to have a FEIN, there are several ways you can apply for one:
- By phone: (800) 829-4933
- By fax or mail: You can find Form SS-4 here and locate the fax number and mailing addresses for your location on the IRS website.
- On the IRS website: You can file Form SS-4 online or participate in an interview-style live chat that will ask you questions and issue you a FEIN if you require one. This service is available Monday through Friday, 7 a.m. to 10 p.m. EST.
Regardless of the method you choose, it will take two weeks for your number to be active in the IRS system.
Even if your business is not required to have a FEIN, you may decide that it’s worth applying for one anyway. There is no charge to do so, and you never know when you may decide that it’s time to hire an employee or when your business circumstances might change.
When do I need to change my FEIN?
Once you’ve received your FEIN, you do not have to change your FEIN unless under special circumstances as deemed by the IRS.
If your business is a corporation, you’ll be required to change your FEIN if:
- Your business changes to a sole proprietorship or a partnership.
- A new corporation is created through a merger.
- Your business becomes subsidiary to another corporation.
If your business is a partnership, you’ll be required to change your FEIN if:
- The business changes to a sole proprietorship.
- Your business becomes a corporation.
- A new partnership is formed over an old one.
If you have a FEIN as a sole proprietor or an LLC, you’ll be required to change your FEIN if:
- You’re in bankruptcy proceedings.
- You change your business to a corporation or a partnership.
- You gain ownership of another business.
You don’t need to change your FEIN if the name or location of your business changes.
What is the difference between a FEIN and tax ID number?
A FEIN is usually given exclusively to those who apply for the federal employer identification number. The FEIN will help easily identify your business on payroll and other taxation forms. A FEIN can work as a tax identification number, and many states will not assign a separate number. A FEIN can be assigned to most business types, with a few exceptions. As an example, you can use your Social Security number as your tax identification number if you’re a sole proprietor. If you eventually incorporate your business, your tax ID number will need to change and become a FEIN.
Is a FEIN public?
Although many entities use their FEINs to report their taxes and other financial information to the IRS and other government entities, it is public information. Corporations must share their FEINs with the other businesses they do business with. It is often needed for completing W-9 forms, providing credit references and sharing other forms of information. Sharing your FEIN sometimes creates unwanted exposure, which leads to some level of vulnerability. Just like Social Security numbers, FEINs should be used and shared discreetly to reduce the risk of identity theft and fraud.
What if I’m not sure I need a FEIN?
If you’re not sure you need a FEIN, you can consult the Internal Revenue Service’s website. According to Melvin Springer, a New York-based financial executive, a good rule of thumb is that “if you record them on your personal tax return, you are not required to have one, as you can use your Social Security number. If you intend to report them on a business tax return, you will be required to have a FEIN.”
If this is confusing to you, you can hire a online payroll service to help with processing and reporting payroll-related taxes.