One of the most important responsibilities as a new business owner is preparing your business for tax season. For most businesses, this requires obtaining a Federal Employer Identification Number (FEIN) from the IRS to properly prepare and file your taxes.
A FEIN is similar to both an Employer Identification Number (EIN) and Taxpayer Identification Number (TIN). Each of these is a nine-digit number that identifies a business for tax purposes and are used interchangeably.
Do you need a FEIN?
Simply put, a FEIN is used to identify a business entity. Not every business is required to obtain a FEIN, though the vast majority do need one. According to the IRS, you need to apply for an FEIN if any of the following items apply to your business:
- You have employees.
- Your business is a corporation or partnership.
- You file Employment, Excise, or Alcohol, Tobacco and Firearms tax returns.
- You withhold taxes on income paid to a non-resident alien.
- You have a Keogh (tax-deferred pension) plan.
- You are involved with certain trusts, estates, real estate investments, non-profits, farmers’ cooperatives or plan administrators.
One notable business type that doesn’t require a FEIN is a sole proprietor, so long as the business does not meet any of the above criteria.
However, there are many benefits of having a FEIN, even if you are not required to get one. For example, if you want to separate your personal and business finances, banks will often ask for a FEIN to apply for loans, issue credit cards or to even open a business bank account. You will also need a FEIN if you ever wish to bid on a government contract.
Additionally, getting a FEIN can help protect your identity by withholding your Social Security number from additional tax documents. Keep in mind, however, that you also need to keep your FEIN secure, as corporate identity thieves can use this number to target your business and do serious damage.
[Also see: Registering Your Business]
If your principal business is located in the United States or a U.S. territory, you can apply for a FEIN.
Who is eligible to apply for a FEIN?
If your principal business is located in the United States or a U.S. territory, you can apply for a FEIN. You must also have a valid Social Security number, individual taxpayer identification number or an existing FEIN. You may apply for one FEIN per day.
How much does a FEIN cost?
The IRS does not charge any fee to get a FEIN. However, there are a number of business development companies that charge $50 or more to apply for a FEIN on your behalf. Getting your FEIN may be a mundane task, but it is a very quick and straightforward process. Most business owners would not consider it worth the cost of paying a service to do it for them.
How to apply for a FEIN
If you are eligible to apply for a FEIN, you need to fill out Form SS-4 with the IRS, which you can do online, and submit your application.
If you apply online, the whole process takes about 15 minutes and, after your information is validated, you will immediately get your FEIN. If you apply by mail, fax or phone, the process can take at least four weeks.
Once you have your FEIN, it does not expire as long as you use it on a federal tax return at least once every three years. Otherwise, there are no further steps you need to take to maintain your FEIN.
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