EIN (Employer Identification Number)

An EIN, short for Employer Identification Number, is the tax identification number the IRS assigns to a business so it can be identified in the federal tax system. The IRS notes that “businesses, organizations and some retirement trusts need an EIN to manage their taxes,” per its Get an Employer Identification Number page. For a US company, the EIN is the number that appears on payroll tax deposits, employment tax returns, and information returns filed with the IRS.

What an EIN Is Used For

The IRS lists the situations that generally require an EIN. According to the same IRS page, you generally need an EIN to:

• Hire employees
• Operate a partnership or corporation
• Pay sales and excise taxes
• Change business structure or ownership
• Administer certain trusts, retirement plans, and estates

The first item is the one that matters most for payroll. A company cannot report wages or deposit withheld taxes without an EIN to attach those filings to.

When a US Company Needs One to Run Payroll

Once a US company hires employees, the EIN becomes the account number for its employment tax obligations. Employers use Form 941 to “report federal income, social security, and Medicare taxes withheld from employee’s paychecks” and to report the employer’s share of Social Security and Medicare taxes, in the IRS wording. That return, the related deposits, and the year-end wage statements all reference the employer’s EIN. Without one, a company has no way to file these returns or remit the tax it has withheld.

The same logic extends to a US company acting as a withholding agent on payments to foreign persons. A withholding agent that deducts tax on US-source income and reports it to the IRS does so under its EIN, which ties the deposited tax and the information returns back to the paying entity.

Filing Information Returns

Beyond payroll, the EIN is the number a business puts on the information returns it files with the IRS, such as wage statements for employees and the returns that report payments to contractors and foreign payees. The IRS uses the EIN to match those filings to the correct entity, which is why obtaining an EIN is one of the first steps when a company begins paying anyone in the United States.

How to Get an EIN

A business applies for an EIN directly with the IRS. The IRS offers a free online application and also accepts Form SS-4, which the IRS describes as the form used to “apply for an employer identification number (EIN).” To apply online, the IRS requires that the applicant have a principal place of business in the US or US territories and that the responsible party have a valid Social Security number or ITIN. The IRS is explicit that the number is free: “Beware of websites that charge for an EIN. You never have to pay a fee for an EIN.”

Common Pitfalls

• Paying a third party for an EIN. The IRS issues EINs at no cost. Any site charging a fee is not the IRS.
• Confusing an EIN with an ITIN. An EIN identifies the business. An ITIN identifies an individual who is not eligible for an SSN.
• Hiring before applying. Payroll filings and deposits require an EIN, so a company should obtain one before its first payday.

Related Terms

• ITIN (Individual Taxpayer Identification Number): the individual tax ID the responsible party may use on the EIN application.
• Withholding Agent: the party that withholds and reports tax under its EIN.

Omnivoo handles US employment and contractor payments end to end, mapping each payroll filing and information return to the right entity so a company’s tax identifiers stay aligned with what the IRS expects.