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Understanding Federal Employer Identification Numbers (FEINs)

The Federal Employer Identification Number (FEIN), often referred to as an Employer Identification Number (EIN), is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to identify a business entity. Similar to how a Social Security Number identifies an individual, an FEIN identifies a business for tax purposes.

What is a Federal Employer Identification Number (FEIN)?

An FEIN is essentially a tax ID for businesses. It is used by the IRS to identify businesses for various tax-related activities, including:

  • Reporting employment taxes
  • Filing business tax returns
  • Opening a business bank account
  • Applying for business licenses and permits
Who Needs a Federal Employer Identification Number?

Not every business needs an FEIN, but many do. Generally, you will need an FEIN if you operate your business as any of the following:

  • A corporation
  • A partnership
  • A multi-member LLC (Limited Liability Company)
  • An employer (hiring employees)
  • A sole proprietorship or single-member LLC that files excise, alcohol, tobacco, or firearm tax returns
  • A non-profit organization
  • Trusts (except certain grantor trusts)
  • Estates

Sole proprietors and single-member LLCs without employees generally do not need an FEIN and can use their Social Security Number for business tax purposes. However, they may choose to obtain an FEIN for other reasons, such as maintaining privacy or for professional credibility.

Is an FEIN Required for Payroll?

Yes, if you have employees, an FEIN is absolutely required for payroll. Employers use their FEIN to:

  • Report wages paid to employees to the IRS
  • Withhold federal income tax, Social Security, and Medicare taxes from employee wages
  • Pay the employer's share of Social Security and Medicare taxes
  • File various employment tax forms, such as Form 941 (Employer's Quarterly Federal Tax Return) and Form W-2 (Wage and Tax Statement).

Without an FEIN, you cannot legally pay employees or comply with federal employment tax obligations.

How to Apply for an FEIN

Applying for an FEIN is a straightforward process and can be done online on the official IRS website, by fax, or by mail. The IRS encourages applicants to use the online application if possible, as it is the fastest way to obtain an FEIN.

Online Application

The most common and efficient method is to apply online through the official IRS website. The online application is available for businesses located in the United States or U.S. territories. The individual applying must have a valid Taxpayer Identification Number (SSN, ITIN, or existing EIN). The process takes minutes and your FEIN is usually provided immediately. Be sure to download the FEIN letter the process creates when you are finished.

Fax Application

You can also fax Form SS-4, Application for Employer Identification Number, to the IRS. If all information is complete, the IRS will respond with your FEIN within four business days.

Mail Application

If you prefer to apply by mail, complete Form SS-4 and send it to the appropriate IRS address. The processing time for mail applications is typically several weeks.

When Do Employers Need to Change Their FEIN?

While an FEIN is generally permanent, there are certain situations where an employer might need to apply for a new one. These typically involve a change in the legal structure or ownership of the business.

Here are some common scenarios that may require a new FEIN:

Changing Business Structure:

  • A sole proprietorship incorporates.
  • A partnership incorporates.
  • A partnership changes to a sole proprietorship.
  • An LLC elects to be taxed as a corporation or partnership.

Buying or Inheriting a Business:

  • An individual or entity acquires an existing business and operates it as a sole proprietorship, partnership, or corporation.

Bankruptcy:

  • When a business undergoes certain types of bankruptcy.

Mergers and Acquisitions:

  • When businesses merge, or one business acquires another, and a new legal entity is formed.

It's important to consult with a tax professional or refer to IRS guidelines to determine if your specific situation requires a new FEIN.

Other Pertinent Information About FEINs

  • One FEIN Per Entity: Each legal business entity generally needs only one FEIN, even if it has multiple locations or does business under different names.
  • No Cost to Apply: There is no fee to apply for an FEIN directly through the IRS. Be wary of third-party websites that charge a fee for this service.
  • Privacy: Using an FEIN instead of your Social Security Number for business transactions can help protect your personal identity.
  • Importance of Accuracy: Ensure all information provided on your FEIN application is accurate to avoid processing delays or issues with the IRS.
  • Foreign Businesses: Foreign entities that are required to file U.S. tax returns may also need an FEIN.

Understanding and properly utilizing your Federal Employer Identification Number is a crucial aspect of responsible business management and tax compliance. If you have any doubts about whether you need an FEIN or how to use it, it's always best to seek guidance from a qualified tax advisor or the IRS directly.

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