What Is an EIN and Which Businesses Need One

An Employer Identification Number (EIN) is a nine-digit federal tax ID assigned by the IRS for tax filing and reporting. Businesses with employees generally need one, as do many corporations, partnerships, multi-owner LLCs, tax-exempt organizations, estates, trusts, and businesses with certain federal tax obligations. A qualifying single-member LLC may not need a separate EIN for federal purposes, but a state may still request one during tax registration.

An EIN does not take the place of a state sales tax permit or state tax account. Sales tax registration is handled under state—and sometimes local—rules, so a business must evaluate its obligations in every jurisdiction where it operates or makes taxable sales.

EIN Quick Facts

The distinction between federal identification and state registration matters. A business may need an EIN without having a sales tax obligation, or it may encounter a state tax registration process even when it does not need a separate EIN for federal purposes.

Which businesses need an EIN?

A business needs an EIN if it has employees. An EIN is also required when a business must pay employment, excise, or alcohol, tobacco, and firearms taxes. The requirement also applies when withholding nonwage income tax paid to a nonresident alien.

Entity structure is another important consideration. The IRS identifies partnerships, corporations, tax-exempt organizations, estates, trusts subject to specified exceptions, LLCs subject to their own classification rules, and certain other entities as needing an EIN.

How the rule applies to LLCs

LLCs require a closer look because the answer depends on ownership, employees, federal tax obligations, and tax treatment.

• Multi-owner LLC: A multi-owner LLC needs a separate EIN.
• Single-member LLC with corporate treatment: A single-member LLC electing corporate or S corporation treatment needs a separate EIN.
• Single-member LLC with employees or relevant excise taxes: The LLC does not qualify for the general exception and needs an EIN.
• Qualifying single-member LLC: A sole-owner LLC generally does not need a separate EIN when it has no employees, owes no relevant excise taxes, and has not elected corporate tax treatment.

This LLC exception concerns the federal EIN requirement. It does not determine whether the owner must register for sales tax, obtain another state tax ID, or complete a local registration.

Sole proprietors

Business structure alone should not be the only question a sole proprietor asks. The owner should also consider whether the business has employees, owes one of the relevant federal taxes, or has the specified withholding obligation. A state registration process may separately ask for an EIN even when federal rules do not otherwise require one.

How an EIN relates to sales tax registration

An EIN and a sales tax registration serve different purposes. The EIN is a federal tax identification number. Sales tax accounts, permits, and related identifiers are established under the rules of the applicable state or locality. There is no single federal sales tax registration that covers every jurisdiction.

Federal guidance recognizes that an EIN may be requested for state tax purposes even when the business is not required to obtain one for federal tax purposes. However, that does not mean every state requires an EIN from every applicant. State tax obligations and state tax ID procedures vary, so the business must check the rules of the applicable state government.

For example, a seller considering California can review the California CDTFA sales tax registration process, while a business evaluating Wyoming can consult the guide to Wyoming sales tax registration for new businesses. The jurisdictional analysis may be different in places without a conventional statewide sales tax, as explained in the overview of Oregon sales tax considerations.

When preparing for state registration, keep the questions separate:

• Does the business need an EIN under federal rules?
• Does the state request an EIN as part of its registration process?
• Does the business have a sales tax registration obligation in that jurisdiction?
• Are there separate local registration rules to evaluate?

Answering one of these questions does not automatically answer the others. In particular, receiving an EIN does not establish that the business has completed sales tax registration.

What to prepare before applying

Start by confirming the business’s legal structure and whether the entity has already been created under state law. A newly created LLC, partnership, or corporation should be registered with its state before the EIN application is submitted.

Use this preparation checklist to organize the application:

• Confirm the entity type and ownership structure.
• Determine whether a single-member LLC has employees, relevant excise tax obligations, or an election for corporate or S corporation treatment.
• Identify the individual who will act as the responsible party.
• Choose an eligible application method.
• If applying online, confirm that the applicant has a legal residence, principal place of business, or principal office or agency in the United States or a U.S. territory.
• If applying online, confirm that the responsible individual has a valid SSN, EIN, or ITIN.
• Make sure another EIN application for the entity is not being sent through a different method.
• Coordinate the federal application with any separate state formation and tax-registration work.

Careful preparation is especially useful when several registrations are underway at once. Keep entity formation documents, the EIN application information, and state sales tax materials organized as separate records so that identifiers and registration statuses are not confused.

Application process, cost, and ongoing records

The IRS accepts EIN applications online, by fax, or by mail. Telephone applications are limited to international applicants. Fax and mail applicants use Form SS-4. The IRS directs an applicant to use only one application method for each entity, rather than submitting duplicate requests through multiple channels.

Online eligibility is narrower than general EIN eligibility. The online application is available only when the applicant has a legal residence, principal place of business, or principal office or agency in the United States or a U.S. territory. The responsible individual must also have a valid SSN, EIN, or ITIN to use the online application. Businesses that do not meet these online conditions must consider another method for which they are eligible.

The IRS issues EINs free of charge. The one-per-day restriction applies across application methods: the IRS permits only one EIN application per responsible party per day, whether the application is made online, by telephone, by mail, or by fax. Businesses organizing multiple entities should account for that restriction rather than attempting simultaneous submissions through different channels.

After receiving an EIN, preserve the number and the entity information associated with it in the business’s tax records. Use the legal entity’s information consistently when coordinating federal filings, state tax applications, payroll arrangements, and other business records. Do not treat an EIN confirmation as proof that a separate state sales tax registration has been approved.

Also keep state tax account details separate from the EIN. A state may assign its own identifier or use its own registration procedure. Because state and local sales tax requirements, fees, identifiers, and deadlines depend on the jurisdiction, review each relevant jurisdiction rather than applying a process from one state to another.