A federal employer identification number is needed for certain businesses.
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 FEIN, also known as a federal tax identification number 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 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.
Did you know? A FEIN is 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.
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.
Who needs a FEIN?
Not every small business entity needs a FEIN, but many do, including the following:
- 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.
You also need a FEIN when your organization pays taxes of any kind, as well as when you issue employee-related tax forms, such as W-2s. Employers are required to issue W-2s to their employees after the end of each tax year. All payroll-related reports contain your FEIN number – including monthly, quarterly and annual tax forms – all of which can be performed 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 any 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.
What if I'm not sure I need a FEIN?
If you're not sure if 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 an independent online payroll processor to help with processing and reporting payroll-related taxes.
Where can I get a FEIN?
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 the SS-4 form online or participate in an "interview-style" live chat that will ask you questions and issue you a FEIN if you require one
Regardless of what 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. It might be better to do the legwork ahead of time than to try to do it on the fly.
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 easily help identify your business on payroll and other taxation forms. FEIN can work as a tax identification number, and many states will not assign a separate number. A FEIN can be assigned to many business types, with some 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.
What information is required for a FEIN?
For starters, you'll need to provide a physical address for your business, with a location in the United States 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 and the reason you're applying for a FEIN. As an example, you may be launching a new business or have restructured your existing business. You'll have to put in a contact name and the individual's Social Security number.