An Employer Identification Number is the nine-digit federal tax ID the IRS assigns to your business, and with it you can open a business bank account, hire and pay employees, pay independent contractors, file federal business tax returns, apply for state and local licenses and permits, and build credit in the company’s name. It works for your business the way a Social Security Number works for you personally, and applying directly through the IRS is free.1Internal Revenue Service. Get an Employer Identification Number
Open a Business Bank Account
A dedicated business account keeps company money separate from personal money, which matters for liability protection and clean records at tax time. Federal regulation requires banks to collect a taxpayer identification number before opening any business account, and for a business entity that number is your EIN.2eCFR. 31 CFR 1020.220 – Customer Identification Program The rule comes from the Customer Identification Program under Section 326 of the USA PATRIOT Act.
Bring three things to the appointment: your EIN confirmation letter (IRS Notice CP 575, sent after your application is approved), your formation documents such as articles of incorporation or an operating agreement, and a government-issued photo ID. Every deposit, withdrawal, and transaction is then linked to the business rather than to you, and that separation is what protects personal assets if the company later faces a lawsuit or creditor claim.
Banks are also required to identify anyone who owns 25 percent or more of the business or who controls it, under the Customer Due Diligence rule. Be ready to give names, addresses, dates of birth, and identification numbers for each qualifying owner.3Financial Crimes Enforcement Network. Information on Complying with the Customer Due Diligence (CDD) Final Rule
Hire and Pay Employees
The moment you have your first employee, your EIN becomes the identifier on every federal payroll obligation. Register for the Electronic Federal Tax Payment System (EFTPS) using your EIN so you can make required federal tax deposits during the year.4Internal Revenue Service. Depositing and Reporting Employment Taxes
Each quarter, you report the income tax, Social Security tax, and Medicare tax withheld from paychecks, plus your matching share of Social Security and Medicare, on Form 941. Your EIN must appear exactly as the IRS assigned it.5Internal Revenue Service. About Form 941, Employers Quarterly Federal Tax Return Once a year you also file Form 940 for federal unemployment (FUTA) tax. The gross FUTA rate is 6.0 percent on the first $7,000 of each employee’s annual wages, and most employers get a credit of up to 5.4 percent for state unemployment tax paid on time, dropping the effective federal rate to 0.6 percent.6Internal Revenue Service. 2025 Instructions for Form 940 – Employers Annual Federal Unemployment (FUTA) Tax Return
Pay Independent Contractors
Your EIN also identifies you when you pay non-employees. If you pay a contractor $600 or more for services in a year, file Form 1099-NEC to report those payments. Your EIN and the contractor’s taxpayer identification number both appear on the form.7Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC Form 1099-NEC is due to the IRS and to the contractor by January 31 of the following year.8Internal Revenue Service. Employment Tax Due Dates
Accuracy matters here. An incorrect or missing EIN on an information return draws a per-return penalty from the IRS, starting at $60 and rising the longer the error goes uncorrected.9Internal Revenue Service. Information Return Penalties With many contractors, the totals add up fast.
File Federal Business Tax Returns
Your EIN is how the IRS matches a return to your business. Which form you file depends on how the business is organized:
- Partnerships file Form 1065. The partnership itself pays no income tax; profits and losses flow through to each partner’s personal return.10Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income
- C corporations file Form 1120 and pay corporate income tax.11Internal Revenue Service. About Form 1120, U.S. Corporation Income Tax Return
- S corporations file Form 1120-S, with income passing through to shareholders much like a partnership.12Internal Revenue Service. About Form 1120-S, U.S. Income Tax Return for an S Corporation
Whether you e-file or mail a paper return, the EIN has to match IRS records exactly. A single transposed digit can hold up processing or cause an electronic filing to be rejected.
Apply for State and Local Licenses and Permits
State and local agencies ask for your EIN when you apply for operating licenses, health permits, professional certifications, and other business authorizations. On most applications, the field is labeled “Federal Tax ID” or “Employer Identification Number.” That number lets the agency tie your local business activity to your federal tax record.
Permit fees range widely by location and industry, from under $100 for a basic business license to several hundred dollars for specialized permits. Many states also require a separate state tax ID for collecting sales tax or withholding state income tax from wages. Some states issue one automatically when you register the business; others require their own application.
Build Business Credit
An EIN is what lets your company build a credit history that belongs to the business rather than to you. When you apply for trade credit with a supplier, such as Net-30 terms that give you 30 days to pay after delivery, you use your EIN in place of your Social Security Number. Business debts stay off your personal credit report, and the company develops its own track record.
Three major bureaus track business credit: Dun & Bradstreet, Experian, and Equifax. Dun & Bradstreet leans heavily on trade credit reports from vendors; Experian and Equifax also pull from lenders, public records like liens and bankruptcies, and collection agencies. You register your EIN with one or more bureaus to create a file, and as vendors and lenders report your payments, a score builds up. A stronger business credit profile can lead to higher credit limits, better interest rates on loans, and more favorable supplier terms. On-time payments across every account are the fastest way to get there.
When You Don’t Need an EIN
A sole proprietor with no employees can use a Social Security Number for federal tax purposes and is not required to have an EIN. The IRS requires one if you have employees, operate as a partnership, LLC, corporation, or nonprofit, or withhold taxes on payments to nonresident aliens.13Internal Revenue Service. Employer Identification Number Trusts, estates, and retirement plans need their own EINs for tax filing.14Internal Revenue Service. Instructions for Form SS-4
Many sole proprietors get one anyway, so they can open a business bank account or hand out an EIN instead of a Social Security Number to clients and vendors. The IRS never charges a fee, so ignore third-party sites that do.1Internal Revenue Service. Get an Employer Identification Number
Protect Your EIN
Because your EIN is the key to so much, treat it the way you’d treat a Social Security card. Share it only when required, and store your CP 575 confirmation letter somewhere safe. A stolen EIN can be used to file fraudulent tax returns, invent fake employees, or open unauthorized accounts. Warning signs include IRS notices about employees you never hired, a rejected return because one was already filed under your EIN, or notices about tax activity for a business you already closed.15Internal Revenue Service. Tax Practitioner Guide to Business Identity Theft
Any of these can also come from a simple clerical mix-up, so the IRS suggests looking into the cause before assuming the worst. If unauthorized use is confirmed, file Form 14039-B, the Business Identity Theft Affidavit.16Internal Revenue Service. Business Identity Theft Affidavit – Form 14039-B