What Is an ERN? Clarifying the EIN for Businesses
Clarify the meaning and importance of the Employer Identification Number (EIN) for businesses. Discover its role in finance and how to secure and utilize it.
An Employer Identification Number (EIN) is a unique federal tax identification number for businesses in the United States. While some may search for “ERN,” the correct term for U.S. businesses is EIN. This number is fundamental for various financial and tax-related activities, allowing businesses to interact properly with tax authorities and financial institutions.
Understanding the Employer Identification Number
The Employer Identification Number (EIN) is a nine-digit federal tax ID issued by the Internal Revenue Service (IRS) to identify business entities. Its format is XX-XXXXXXX. This number is comparable to a Social Security Number for individuals, but it is specifically for businesses.
The EIN serves as a unique identifier for tax administration, allowing the IRS to track business tax filings and compliance. Its primary purpose is to identify businesses for federal tax reporting, including income and employment taxes. While “ERN” is used in other countries, such as the UK for an Employer Reference Number, in the United States, the correct term is EIN.
Entities Requiring an EIN
Most businesses and organizations in the United States must obtain an EIN. This includes any business with employees, regardless of its legal structure. Corporations, partnerships, and multi-member Limited Liability Companies (LLCs) also need an EIN, even without employees.
Other entities, such as non-profit organizations, trusts, and estates, require an EIN for tax purposes. While a sole proprietorship or single-member LLC without employees can use the owner’s Social Security Number, an EIN is necessary if they hire employees, file excise tax returns, or wish to separate business and personal finances. Obtaining an EIN can also provide professionalism and help prevent identity theft by not using a personal SSN for business transactions.
Applying for an EIN
Obtaining an EIN is straightforward and free, available directly from the IRS. Before applying, businesses should gather essential information, including the legal name and address, entity type, and reason for applying. The responsible party, such as the owner or a managing member, must provide their Taxpayer Identification Number (SSN or ITIN).
The most common and fastest method to apply is online through the IRS website, which typically provides the EIN immediately upon completion. Alternatively, applicants can submit Form SS-4 by fax or mail. Fax applications take about four business days to process, while mailed applications may take up to four weeks.
Using Your EIN
Once obtained, the EIN becomes a critical identifier for various business activities. A primary use is for opening a business bank account, which is often a requirement for financial separation and management. The EIN is also essential for filing various federal tax returns, including income tax returns and employment tax forms if the business has employees.
Businesses also use their EIN when applying for federal, state, and local licenses and permits. It is provided to vendors or clients for tax reporting, such as when issuing or receiving Form W-9. Protecting the EIN is important due to its significance in financial and tax compliance.