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What is a FEIN? Decoding the Federal Employer ID Number

June 25, 2024

What is a FEIN

Starting and running a business can be overwhelming, especially with the world of paperwork, taxes, and regulations to keep track of. Federal tax requirements can be especially daunting, as you don’t want to make a tax mistake within your business operations. 

Among these daunting steps is figuring out whether or not your business needs to apply for a Federal Employer Identification Number (FEIN). If you’re feeling overwhelmed with beginning your business, learning the importance of this number is a great place to start. 

The Federal Employee Identification Number is a great thing for businesses, and most businesses are required to have them. Let’s break down what this number is, how it can simplify your business life, and the importance of FEIN. 

Understanding FEIN: What is a FEIN? 

A FEIN stands for a Federal Employer Identification Number. This is a unique nine-digit tax ID number issued to business entities by the Internal Revenue Service (IRS) for identification purposes. The FEIN is also the same as the Federal Tax Identification Number (FTIN). You can think of it like your business’s own social security number.

A key aspect of a FEIN is that once you receive this identification number, it’s yours indefinitely. FEIN numbers are never recycled to another business, even if a business ceases to exist. Each business will receive its own new, personalized, and permanent FEIN number.

Your business will use this number for tax purposes, payroll, and to open bank accounts.

FEIN vs. EIN

You may be wondering what the difference is between a Federal Employer Identification Number and an Employer Identification Number. The fact is, both FEIN and EIN are interchangeable terms for the nine-digit number used by the Internal Revenue Service (IRS) for tax purposes. 

This number is your business's identification number and will be structured in the XX-XXXXXX format by the IRS.

Who Needs a FEIN

Most businesses and organizations will need a FEIN. Whether you’ve just started a business or are about to, it’s important to be informed of the FEIN requirements to ensure legal and federal tax compliance. You’ll need to obtain a FEIN if your business meets any of these criteria:

  • Employs a staff. If your business has or will have employees on its payroll, you need a FEIN. 
  • Is either a corporation or partnership. FEINs are needed for all businesses that are set up and operate as either of these entities.
  • File certain taxes. Businesses that file employment or excise taxes need a FEIN. 
  • Withholds taxes on income. This applies if your business pays withholding taxes on income paid to non-resident aliens.
  • Has a Keogh plan. The Keogh plan is a type of qualified plan for self-employed individuals, including both defined benefit and defined contribution plans.
  • Is involved with various organizations. This includes, but is not limited to, whether your business is involved with trusts, estates, or nonprofits.

The Role of a FEIN in Your Business

Beyond the simplification that having a Federal Employer Identification Number gives businesses, your business may be legally obligated to have one. Also known as a Federal Tax ID number, this number is mandated by the IRS for businesses that are corporations, partnerships, hire employees, file employer tax returns, or withhold taxes from non-resident aliens' non-wage income.

In addition to being essential for tax-related matters, a FEIN is also helpful when it comes to opening business bank accounts, applying for business credit cards, and obtaining business loans. Since this number works similarly to a social security number, it’s greatly beneficial to have this number when conducting business transactions.

While this tax number is required if your business employs any employees, you may not be required to have one when hiring independent contractors. It’s important that businesses should carefully follow all legal requirements when classifying a worker as an independent contractor or an employee.

How to Apply for a FEIN: A Step-by-Step Guide

Applying for a Federal Employee Identification Number is pretty straightforward and free of charge for businesses and organizations. It’s important to note that if you are using a website that is charging you, it may be a scam. The best way to ensure an accurate application and avoid scams is by applying directly through the IRS’s website.

Steps for Applying for a FEIN

  • Determine if your business needs a FEIN. As discussed, some businesses and organizations do not need a Federal Employer Identification Number. However, most businesses will meet at least one of the requirements for needing a FEIN. 
  • Gather the necessary information. The online FEIN application is sectioned into five segments, including identification of your business’s legal name, authentication, address information, business details, and EIN confirmation. 
    • Choose your application method. Businesses can apply for a FEIN either online, by mail, or by fax. However, the preferred and easiest method is to apply online through the IRS’s website, as online applications are processed the fastest. 
  • Provide your reason. You’ll be required to fill out Form SS-4. In this part of the application, you will provide information about your organization's structure, the reason for your application, and whether you owe excise or employment taxes.

 

  • Send in your FEIN application. Once you’ve completed these steps, you’re ready to send in your application. After it’s submitted, the IRS will review your application and provide you with a FEIN. You'll be able to start using this number as soon as you receive it. 

Practical Uses of a FEIN in Daily Business Operations

Truthfully, having a FEIN often simplifies operations for your business. It’s essentially a personalized social security number for your business and can be used on a variety of documents for identification purposes. 

Your FEIN can be used not only for filing federal income tax returns but also in daily business operations. It can simplify a variety of tasks associated with a business's day-to-day operation, such as opening a bank account, applying for business licenses, or processing employee payroll.

Operating with a FEIN also helps your business maintain boundaries between an owner’s personal information, such as a social security number, and the business’s activities. This helps ensure better record-keeping when it comes to taxes, business banking, and other IRS requirements. 

The Importance of FEIN

Essentially, all businesses that employ staff and are incorporated—sole proprietorships, partnerships, non-profit associations, trusts, estates, and other entities—can use a FEIN. 

Whether you are about to start your business or have already started it, it’s crucial that all business owners understand the importance of FEIN and make sure that they are complying with the FEIN laws. If your business meets the requirements set by the IRS mandating you to have a Federal Employer Identification Number, you’ll need to apply for one as soon as possible. 

Now, you should be able to answer the question of what is a FEIN, how to apply for a FEIN, and the importance of FEIN. By following the easy application steps, you’ll be able to efficiently obtain your Federal Employer Identification Number and move forward with your business operations without unnecessary hassle. 

Need help applying for a FEIN or managing other business payroll needs? Contact our experts for personalized assistance!

 

About the Author

erc backlog portraitRick Fish, Jr., COO (C.P.P)

Rick Fish, Jr., is a former CEO and current COO (Chief Operations Officer) at Complete Payroll, as well as a Managing Partner at the company. Rick is a Certified Payroll Professional (C.P.P) as designated by the American Payroll Association (APA), and a licensed Life, Accident, and Health Insurance Agent. Rick graduated Magna Cum Laude from the State University of New York at Oswego with a B.S. in Accounting.

DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting, or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.

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