When Do You Need An FEIN?

Whereas every American usually needs to have a Social Security Number, not every business is required to have an FEIN or EIN as it is referred as by the IRS.

Nine-Digit Number

An EIN is a permanent nine-digit number that can be applied for online and issued and used immediately by the applicant. Although your Social Security Number is also nine digits, the IRS separates these numbers differently such as 00-1234567. A dash is always placed between the second and third digit to signify an EIN.

The IRS issues EINs to business owners who want to open up a business account, but use their EIN instead of their SSN. An EIN is also useful for obtaining business licenses and for filing a tax return by mail. However, it takes the IRS two weeks to make an EIN part of its permanent records. You should refrain from filing an electronic return or making an electronic payment until after the IRS updates its records.

Immigration Records

The IRS also uses an EIN if you sponsor an immigrant employee. That’s because the paperwork you submit to the U.S. Citizenship and Immigration Services or USCIS requires you to include an EIN. Your business receives its own immigration file that enables the USCIS to track the information you have filed.

EIN Requirements

Recent updates to the IRS code requires people who start a new business to obtain an FEIN. This includes any business that has hired or will hire employees including household employees such as a maid or a nanny.

If you change the legal character of your business, such as going from an LLC to an S Corp, you’ll need an FEIN. Other considerations include creating a trust, if you formed a partnership or corporation, are administering an estate or if you represent an estate that is managing a business after the owner’s death.

Sole Proprietor

If you already operate a business by yourself, then you don’t need an EIN as long as you don’t hire employees. You can open accounts with your social security number, but keep in mind that your personal assets could be at risk. With an FEIN your business only is usually liable, not yourself. Consult with a tax advisor for personal guidance.