Keeping a firm open involves conforming to several regulations and rules. The application for a Federal Employer Identification Number (FEIN) should be among the initial steps in establishing a business. But, what exactly is an FEIN? Also, is it mandatory to have one? This article will serve as a guide on all you need to know. Let’s skip to the good part.
What does FEIN mean?
Entities doing business in the United States are awarded a federal tax identification number, often known as an employer identification number (EIN). The number is a unique nine-digit business ID number that functions similarly to an individual’s Social Security number. By “Social Security number,” I mean individuals’ tax numbers, often known as tax identification numbers or TINs. It’s easy to mix up the two types of numbers, but just keep in mind that one is for businesses and the other is for individuals. That shouldn’t skip your mind.
A FEIN allows the IRS and other government agencies to identify and track the tax and financial operations of businesses. It is essential to file tax returns as well as establish retirement and health accounts in order to provide medical and dental benefits to employees, among other things.
Who needs an FEIN?
An FEIN is not always necessary, but there are several situations in which it is necessary for any firm, even a one-person operation. However, you will need it if you:
- Create a company or partner up with others.
- File certain tax forms (e.g., employment or excise tax)
- Withhold taxes on income, other than wages, for non-resident aliens
- Have a Keogh plan
If you belong to or run the following sorts of organizations, you could additionally require a Federal Employer Identification Number (FEIN):
- Trusts, except for some revocable trusts owned by the grantor, IRAs, and tax-exempt organizations
- Estates
- Real estate mortgage investment conduits
- Cooperatives of farmers
- Plan administrators
An FEIN is not often needed by the following organizations:
- Business owners that operate on a “one-man show”
- Whoever doesn’t hire someone or isn’t employing anyone.
- Anyone who doesn’t have to pay the aforementioned taxes
If you start your firm as a single proprietor and use your Social Security number instead of an FEIN, you may find out later that you need one. Especially if you plan to expand or reorganize your company to a corporation and hire workers. In fact, if you later start a corporation, you will require an FEIN. Even when it comes to submitting local, state, and federal taxes, your FEIN is a critical piece of information.
What is an FEIN used for?
You will require an FEIN to fill forms like:
- Form W-2 – Wage & Tax Statement
- Form W-3 – Transmittal of Wage & Tax Statements
- Form 1096 – Annual Summary and Transmittal of U.S. Information Returns
- Form 940 – Employer’s Annual Federal Unemployment (FUTA) Tax Return
- Form 941 – Employer’s Quarterly Federal Tax Return
- Schedule C – Profit or Loss from Business
- Form 1065 – U.S. Return of Partnership Income
- Form 1120 – U.S. Corporation Income Tax Return
A FEIN is also required when your firm pays taxes of any kind and issues employee-related tax forms such as W-2s. Employers must provide W-2s to their employees at the end of each fiscal year. All payroll reports, including monthly, quarterly, and annual tax forms, include your FEIN and can be filed by a competent payroll processing provider.
You must also issue a 1099 to any independent contractor to whom you paid at least $600 during the tax year, and your FEIN must be included on that form. Not only will your company require an FEIN for numerous purposes, but so will your employees and outside contractors when preparing their tax returns.
How do I obtain an FEIN?
To obtain your FEIN number with ease, you can make essential use of these steps listed below.
#1. Determine whether you are eligible for an FEIN.
If your primary business is based in the United States or its territories, and you have a valid Social Security number or another form of tax identification, such as another FEIN, you are eligible for an FEIN.
If you have your main business in the United States or its territories, the majority of your income as a business owner comes from a practice in this area. As a result, even if you have another firm outside of the United States, you may still be qualified for an FEIN. The applicant does not have to be the business owner, but they must have intimate knowledge of and transactions with the company’s finances. A secretary or administrative assistant can also file for an FEIN. All you need is to simply sign Form SS-4 and fill out the third-party designee section.
#2. Gather the information required by the IRS.
Form SS-4: Application for Employer Identification Number is required by the IRS. To obtain an FEIN, you must first submit a physical address for your firm (with a location in the United States).
On the application form, you must specify your company’s legal structure, such as an LLC or corporation. If your company is an LLC, you must list all of the members. You must also specify the nature of your business.
When applying, you will need the following supplementary information:
- The reason you’re requesting an FEIN. For example, you may be starting a new firm or restructuring an existing one.
- The precise date on which you started or purchased your firm.
- The industry in which your company operates or in which you keep clients, such as retail or consultancy, as well as the product or service description.
- When the first employee pay was paid through your company.
- The end date of your fiscal or accounting year. If you pay your taxes throughout the calendar year, this is usually the month of December.
- The most likely number of employees you intend to hire in the future year.
#3. Apply for an FEIN online, by phone, or by mail.
If you are eligible to have an FEIN, there are numerous options for obtaining one:
- Phone number: (800) 829-4933
- By fax or regular mail: You will find Form SS-4 here, as well as the fax number and mailing address for your location on the IRS website.
- On the IRS website: You can file Form SS-4 online or participate in an interview-style live chat where you will be asked questions and given an FEIN if one is required. This service is available from 7 a.m. to 10 p.m. EST Monday through Friday. It will take two weeks for your number to be active in the IRS system, regardless of which method you use.
Even if your company does not need an FEIN, you may feel it is worthwhile to apply for one regardless. There is no cost to do so, and you never know when you might decide to hire an employee or when your business conditions might change.
When do I need to change my FEIN?
You will not need to update or make any changes to your FEIN once you have acquired it. Unless there are exceptional circumstances as determined by the IRS, if your company is a corporation, you must update or change your FEIN if:
- Your company becomes a sole proprietorship or a partnership.
- A merger results in the formation of a new corporation.
- Your company becomes a subsidiary of another corporation.
When your company is a partnership, you must update your FEIN if:
- The company becomes a sole proprietorship.
- Your company becomes a corporation.
- A new collaboration replaces an old one.
If you hold an FEIN as a sole proprietor or an LLC, you must alter it if you:
- You’ve filed for bankruptcy.
- You convert your company to a corporation or a partnership.
- You acquire control of another company.
You do not have to reapply for a new FEIN if your business moves or changes names.
Cancellation of your FEIN
The IRS never uses your FEIN number for another business after it is assigned to you. You also cannot cancel your FEIN. You can, however, close your business account with the IRS. It is important to note that canceling your business account does not erase your FEIN from the IRS’s database.
Include your company’s legal name, FEIN, business address, and reason for canceling your account when closing your business account. Include a copy of the IRS EIN Assignment Notice if you still have it.
You can send all materials to:
Internal Revenue Service, 45999 Cincinnati, OH
If you have filed all required tax returns, the IRS will only deactivate your business account. Returns must be filed if you:
- A federal tax deposit or other federal payment was made
- Are required to file business tax returns
- Have you received a notification from the IRS that your business tax return is due?
Is an FEIN required to set up payroll?
Before you can start setting up payroll for your employees, you must first obtain an FEIN from the IRS. You would almost certainly need an EIN from your state as well. Both numbers are required to handle payroll because withholding taxes from employee paychecks must be remitted to the relevant tax agencies. To file federal and state unemployment taxes, as well as W-2 and 1099 paperwork, you’ll need both the FEIN/EIN.
What should you do with your FEIN if you need to close your business?
Once you obtain an FEIN, you will have it for the rest of your life. That doesn’t mean you can’t close your company. However, even if your company closes, the FEIN remains on file with the IRS and is stored in its database.
If you realize that you need to close your business, you must contact the IRS and provide them with the legal name of your company, your FEIN, the street address, and the reason for the closing. Include a copy of your CP-575 notification letter with your request, if possible. Remember that the IRS will not cancel an account until all essential company tax returns have been submitted.
What is FEIN vs TIN?
An FEIN may be used as a taxpayer id. A FEIN is required for some firms but not others. In particular, an FEIN is not always required if you don’t have any workers and your company isn’t formed. In such instances, a person’s SSN alone can serve as a valid tax identification number (TIN).
As was also mentioned up top, the FEIN is required for filing federal tax returns. To file taxes with the state, you might need to apply for a state EIN or EAN. It is possible to use those digits as your official tax identification number in the state.
Is an FEIN the same as a SSN?
An EIN is not the same thing as an SSN. Unlike a person’s Tax ID Number, which is their Social Security Number, a business’s EIN is its own unique number. Despite the fact that both numbers serve the same purpose in terms of tax filing, an EIN is reserved for commercial enterprises.
What is an example of a FEIN number?
IRS EINs have the form XX-XXXXXXX and consist of nine digits. It’s a way for employers and people with no workers to distinguish their tax accounts. In the case of employee benefit plans, however, the EIN may be followed by either an alpha (such as P) or the plan number (such as 003).
What is the difference between SSN and FEIN?
The acronym “SSN” refers to your Social Security number. This number, like an FEIN, is provided by the federal government. Contrarily, a social security number identifies you as an individual to the government and other entities, whereas an FEIN does the opposite for your business. Social Security numbers can be used as a business ID in rare circumstances, although this is only advisable for sole proprietors or very small businesses with no workers.
By one definition, you have the status of a small business owner if you receive any 1099 revenue at all. It’s possible for you to file your taxes using just your Social Security number and avoid the necessity for a Federal Employer Identification Number (FEIN), but you’ll still be able to take advantage of company deductions.
How do I verify an FEIN?
The lack of widespread use makes EINs easier to forget; unlike SSNs, few people actually commit them to memory. If you need to verify yours to be sure, then you can either check your FEIN number in the IRS confirmation letter, find other documents that have your employer identification number, or contact the IRS to get your FEIN.
Conclusion
Obtaining an FEIN is a necessary component of doing company, and the process is rather simple. And, because it might be beneficial for other business objectives, applying for one is time well spent and may be one of the simplest decisions a business owner can make. Best wishes as you expand your business!
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