A federal employer identification number (FEIN), also known as a tax identification number, 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. A FEIN is required for businesses to get a business license. [Already have your FEIN? Read our guide on how to get a business license.]
Read on to learn what a FEIN is and how to get one.
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.
Not every small business entity needs a FEIN, but many do:
Businesses that typically do not need a FEIN include the following:
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.
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.
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.
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:
If you are required to have a FEIN, there are several ways you can apply for one:
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.
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:
If your business is a partnership, you’ll be required to change your FEIN if:
If you have a FEIN as a sole proprietor or an LLC, you’ll be required to change your FEIN if:
You don’t need to change your FEIN if the name or location of your business changes.
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.
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.
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.”