Employer identification number (EIN)

Definition

The employer identification number (EIN) is a unique nine-digit identification number assigned by the Internal Revenue Service (IRS) to businesses and other organizations for tax purposes. 

What is an employer identification number?

The primary purpose of the EIN is to identify businesses for federal tax purposes. It is used by the IRS to track tax obligations, filings, and payments associated with businesses, including income taxes, employment taxes, and excise taxes.

The EIN is assigned to various types of businesses, including sole proprietorships, partnerships, corporations, limited liability companies (LLCs), trusts, estates, non-profit organizations, and other organizations that have a filing requirement with the IRS.

Businesses can apply for an EIN through the IRS website. The application is free, and the EIN is typically issued immediately upon completion of the online application process. To apply for an EIN, businesses are required to provide certain information, such as the legal name of the entity, a mailing address, the type of business, and the reason for applying.

The EIN is used by the IRS to verify the identity of businesses and ensure compliance with tax laws. It helps prevent fraud and identity theft by providing a unique identifier for each business.

Businesses may need to apply for a new EIN if there are changes to their ownership structure or if they undergo certain types of corporate restructuring. However, in many cases, businesses can retain the same EIN when undergoing changes that do not alter the business’ legal status for tax purposes.

Example of an employer identification number 

ABC Bakery, a small business specializing in bread and pastries, obtains an employer identification number from the Internal Revenue Service (IRS) upon registering as an employer. The EIN, issued as “123456789,” serves as a unique identifier for ABC Bakery’s tax reporting and compliance purposes.

With its newly assigned EIN, the bakery can now accurately report its business income and fulfil its tax obligations.