An Employer Identification Number (EIN)—also known as a Federal Tax ID Number—is a unique nine-digit number assigned by the IRS to businesses for tax purposes. If you’re starting or running a business, you may wonder:
“What is an EIN used for?”
The EIN serves as your business’s identification number for dealing with federal and state agencies. It’s much like a Social Security Number (SSN) but for your company.
Key Uses of an EIN
1. Filing Federal and State Taxes
The EIN is used to file business income taxes, payroll taxes, and sales taxes. It helps the IRS track your tax obligations and payments.
2. Hiring Employees
If your business plans to hire workers, an EIN is required to report employment taxes, such as Social Security, Medicare, and federal unemployment taxes.
3. Opening a Business Bank Account
Most financial institutions require an EIN to open a business checking or savings account. It separates personal and business finances.
4. Applying for Business Licenses and Permits
Many states and cities require an EIN to issue business licenses or sales tax permits.
5. Establishing Business Credit
An EIN helps build a credit profile for your company, enabling you to apply for business credit cards, loans, and vendor accounts.
6. Forming a Corporation or Partnership
If your business is structured as a partnership, corporation, or multi-member LLC, you’ll need an EIN regardless of whether you have employees.
7. Managing a Trust or Estate
Estates and trusts often require an EIN to manage financial assets and file necessary tax returns.
EIN vs. SSN vs. TIN
- EIN: For businesses, nonprofits, and trusts
- SSN: For individuals (used by sole proprietors without employees)
- TIN (Taxpayer Identification Number): Broad term that includes EINs, SSNs, and ITINs
Do You Need an EIN?
You must get an EIN if you:
- Hire employees
- Operate as a corporation or partnership
- Withhold taxes on income (not wages) paid to a non-resident alien
- Have a Keogh plan
- Involve yourself with trusts, estates, or nonprofits
Even if not required, sole proprietors and single-member LLCs often get an EIN to:
- Keep personal SSNs private
- Appear more professional
- Simplify banking and licensing
Final Thoughts
So, what is an EIN used for?
An EIN is essential for almost every major business function—from taxes and payroll to banking and licensing. Even if you’re not legally required to get one, having an EIN simplifies operations and protects your personal identity.
