A special nine-digit number is allotted to business bodies in the United States for the purpose of identification. This number is called the Employer Identification Number (EIN). It is also better known as the Federal Employer Identification Number (FEIN). Sometimes it is also called the Federal Tax Identification Number (FDIT). The issuance body is International Revenue Service (IRS). It is called the taxpayer Identification Number (TIN) when it is used solely for identification purpose while it is called Employer Identification Number (EIN) when used for reporting employment taxes.
It is mandatory for a business firm to acquire an EIN number if any of the following conditions apply to it.
- If the business firm has employed employees.
- If it is a corporation or a partnership run business.
- Your business withholds taxes on income.
- The business has a Keogh Plan
- The business firm has involvement with firms that are listed on IRS website.
The primary role of EIN is in taxation facilitation, though it is used to serve multi purposes. It can be used for opening an account in the name of business, getting a credit card on the name of the business, applying for business permits or furnishing independent contracts.
The EIN also serves to reduce the risk of identity theft. Instead of using one’s Social Security Number (SSN), one can disclose EIN to his/her clients. This way the clients cannot access personal accounts of the individual disclosing EIN and so is less likely to fall a prey to identity thieves. The EIN should be used for tax-related issues and must not be used for lotteries, auction sales etc.
Banks, credit unions, brokerage houses and other financial institutions do not open an account for a cooperation that does not have an EIN. It is mandatory as all corporations, whether generating income or not, must file their tax returns for which EIN is required.
Prior to 2001, the first two digits of an EIN (the EIN Prefix) indicated the business was located in a particular geographic area. In 2001, EIN assignment was centralized at three of the IRS campuses, although all 10 campuses can assign an EIN, if necessary.
It is a misconception that credit bureaus and credit issues cannot tell the difference between Social Security Numbers and Employer Identification Number. Fraud can be detected by the credit bureaus using special complex algorithms. Therefore, EIN is not considered a sensitive number and can be issued to publications and may also be uploaded on the internet.
The usual format of writing EIN is formatted 00-0000000 as opposed to SSN which has the format which is written in the form 000-00-0000. This format can distinguish EIN from SSN. Before 2001, the first 2 digits of an EIN represented the area in which the business was located. This is not the case now as EIN issuance was centralized and primarily three IRS campuses issue EIN. It may also be issued from all the 10 campuses if considered necessary. Furthermore, decoders using the web can identify the state in which the EIN was issued. EIN can only be issued once to an entity and cannot be re-issued. It is issued for a lifetime and does not have an expiry date.