What’s a FEIN and Why Does Your Business Need One?
Discover the importance of a FEIN for your business, from registration to banking, hiring, and how to obtain and update it efficiently.
A Federal Employer Identification Number (FEIN) is a critical component for businesses operating in the United States. It serves as a unique identifier, akin to a Social Security number for individuals, and plays a significant role in various business activities.
Understanding why your business needs a FEIN can streamline operations and ensure compliance with federal regulations.
Common Role in Business Registration
A Federal Employer Identification Number (FEIN) is essential in establishing a business’s legal identity. When registering a corporation, partnership, or limited liability company, the FEIN is required by the Internal Revenue Service (IRS) to track tax obligations and filings. Many states also mandate the use of a FEIN for obtaining state tax accounts, licenses, or permits. For example, in California, businesses must provide their FEIN when registering for a state employer account number, which is necessary for payroll tax purposes.
The FEIN also enhances credibility. Financial institutions, suppliers, and potential partners often request it as part of due diligence to confirm the business’s existence and compliance with regulations.
Usage in Banking and Finance
In the financial sector, a FEIN is required to open business accounts, ensuring the entity is legally recognized. It acts as a safeguard for banks and financial institutions, allowing them to verify the legitimacy of a business before offering credit or other financial services.
The FEIN is also critical for business loans and credit applications. Financial institutions use it to access a business’s credit report and evaluate financial health. This identifier is equally important for businesses seeking investors or participating in the stock market, as it ensures compliance with securities regulations and builds investor confidence.
Necessity for Employee Hiring
A FEIN is necessary for employers to meet federal employment tax obligations. The IRS requires employers to report wages and taxes using this identifier, which is essential for filing Form 941 (Employer’s Quarterly Federal Tax Return) and Form W-2 (annual wages and tax withholdings report).
Additionally, the FEIN is used for reporting newly hired employees to state directories, aiding in child support enforcement and preventing fraudulent unemployment claims. For businesses offering employee benefits like retirement plans or health insurance, the FEIN is required to manage these programs effectively.
Steps to Obtain
Acquiring a FEIN is straightforward and can be done through several methods.
Online Application
The most efficient method to obtain a FEIN is through the IRS’s online application system. This option is available to businesses in the United States or U.S. territories and provides immediate issuance of the FEIN upon completion. The process requires detailed business information, including legal name, address, and entity type.
Phone Application
The IRS also offers a phone application option, especially useful for international applicants who cannot access the online system. Applicants can call the IRS Business & Specialty Tax Line to complete the process with the assistance of a representative.
Mail Option
For those who prefer or require a paper trail, applying by mail is an option. This involves completing IRS Form SS-4 and sending it to the appropriate IRS address. While reliable, this method is the slowest, taking up to four weeks for processing.
Updating Information After Business Changes
As businesses grow and evolve, changes in structure, ownership, or operations may require updates to FEIN records. Maintaining accurate information with the IRS is crucial to avoid tax reporting issues and potential penalties. For instance, a business relocation without IRS notification could delay tax filings and result in late fees.
Major changes like a new business address, legal name, or ownership structure often necessitate updates. Businesses can use the same methods available for obtaining a FEIN—online, by phone, or through mail—to make these updates. Consulting IRS guidelines or seeking advice from a tax professional can help ensure compliance and accuracy during this process.