Just like individuals need Social Security Numbers (SSNs) for many aspects of everyday life, businesses need Federal Employer Identification Numbers (FEINs) in order to fulfill various functions of doing business. It’s also known as an Employer Identification Number, or EIN; the two terms can be used interchangeably. So, what is a FEIN? It’s a nine-digit number that’s issued to a business by the IRS, and is essential for a broad range of business activities. These include things like filing taxes, processing payroll, applying for business-related licenses, opening business bank accounts, and setting up retirement plans. Each number is unique, and will typically not be changed during the lifetime of the company. Even if the company permanently closes, the FEIN number will still be associated with it, rather than being put back into circulation.
Who Needs a FEIN?
FEINs are most commonly used by businesses, but they’re also required for a number of other entities.
- Multi-member LLCs and partnerships are required to apply for FEIN because they have to file informational returns, and especially so if they have employees and have to file payroll taxes. A FEIN is also necessary in order to open a corporate bank account.
- Corporations such as S-corps and C-corps are business entities that are considered legally separate from the individuals that own them, and as such must have a FEIN. A FEIN is also necessary for essential aspects of operating a corporation, such as paying employees and having a business bank account.
- Some single-member LLCs need to apply for FEIN, even though by default the IRS classifies them as “disregarded entities.” However, if a single-member LLC has one or more employees or chooses to be taxed as a corporation, they should obtain a FEIN.
- Sole proprietorships with plans to incorporate, or sole proprietorships with employees, need a FEIN. A sole proprietorship without employees can be operated with an SSN, but as soon as the owner hires an employee, changes to a business entity, or establishes a retirement plan, they must obtain a FEIN.
- International companies that are operating in the United States may need a FEIN, usually for the same reasons as US companies need one – to stay compliant with tax and payroll laws, to open a business bank account, etc.
- Non-profits and some types of trusts should apply for FEIN if they want to be able to accept donations, obtain tax-exempt status, and maintain compliance with federal and state tax regulations.
These are the most common entities that need a FEIN, but they certainly aren’t the only ones. The IRS FEIN guidelines can provide clarity on whether or not a business entity needs a FEIN number; if there’s any doubt, it’s recommended to consult a qualified expert before making any business decisions.
Is a FEIN required for payroll?
Yes, a FEIN is necessary for several different aspects of processing payroll. Employers use this federal identification number to withhold taxes from employee paychecks, report employee wages to the IRS, pay the employer’s share of Federal Insurance Contributions Act (FICA) taxes, and file a number of related tax forms throughout the year. It’s technically possible for a business to pay employees without a FEIN, but this would leave the company vulnerable to potentially disastrous legal consequences. Not only could they have to pay back taxes, fines, and other penalties to the IRS, but they could also face legal action from employees who were improperly compensated.
How to Apply for a FEIN
Anyone who needs to apply for FEIN can easily do it on the IRS website. If the application is approved, the FEIN will be made available instantly. As noted on the IRS website, there is never a fee associated with applying for a FEIN; any website that charges for this federal identification number is a scam.
The IRS also offers alternatives to the online FEIN application; it’s possible to apply for FEIN via fax and mail. To apply for FEIN through fax, simply fill out Form SS-4 and fax it to the IRS. Provided the application is correctly filled out, the applicant should get a response in four business days. To apply via mail, fill out the same form and send it to the appropriate address. Unlike the other two methods, however, applying through the mail has a processing time of several weeks instead of a few minutes or days.
FAQs for FEIN
What is the difference between a FEIN and an SSN?
A FEIN is used by businesses and other legal entities, while an SSN is used by individuals. That being said, there are some exceptions to these general rules. For instance, sole proprietorships can use a FEIN, even if the business is made up of only the owner and no employees. This helps keep personal and business finances separate, while also paving the way for future expansion if necessary. SSNs can also function similarly to a FEIN in a sole proprietorship, as long as the business owner doesn’t have employees, and reports their business income as personal income. Each federal identification number is nine digits, but they have different formats; a FEIN is formatted as XX-XXXXXXX, and an SSN is formatted as XXX-XX-XXXX. It’s important to know the difference between a FEIN vs. tax ID like an SSN, since this is key to keeping your business compliant with IRS regulations.
When do employers need to change their FEIN?
In most cases, businesses don’t need to change their FEIN. Once they successfully apply for FEIN, the number will remain valid indefinitely. There are instances, though, in which changes to a business require a new FEIN. As some examples, if a sole proprietorship becomes a partnership, establishes a profit-sharing plan, or files for Chapter 7 or Chapter 11 bankruptcy, the IRS would require it to apply for FEIN a second time. There are quite a few circumstances in which a business should change their FEIN, but they’re very specific; this should only be done if IRS regulations require it. General changes like updating the name of the company, getting new owners, moving locations, etc. don’t require a new FEIN.
Can a FEIN number be canceled?
No, the IRS doesn’t have a process for canceling a FEIN number. Even if a business entity permanently closes, its FEIN number will continue to be associated with the company. If the owner of a company shuts down the business, but then decides to re-open it at a later date, they should use the same FEIN. The closest a business can get to canceling their FEIN number is by closing their IRS business account associated with the FEIN.
