If you’re starting a business, you probably understand your industry inside and out, but in addition to knowing your product or service, researching your target market, and focusing on closing sales, you also have to deal with a lot of accounting and tax issues. You probably have questions, including, “what is an FEIN?” To point you in the right direction, here’s a look at the essentials.
Steps to Obtaining your FEIN Number
- What Is an FEIN Number?
- Is the FEIN the Same as a Tax ID?
- What Is the Difference Between an EIN and an FEIN?
- What Is an FEIN Number Used For?
- What Is the Difference Between an FEIN and an SSN?
- How Do I Get a FEIN Number?
- How much does a FEIN cost?
- Who is eligible?
- What is an entity type?
Looking for the answer to what is an FEIN? Well, FEIN stands for “federal employer identification number.” You obtain this number from the federal government, and it helps you identify your business on tax and payroll forms. Some states also issue EINs. These numbers serve the same purpose as federal EINs. The only difference is that they are issued by the state and used on state tax forms. Note that some states use an Employer Account Number (EAN) instead of an EIN.
An FEIN can work as a tax identification number. However, not all businesses need an FEIN. In particular, if you don’t have employees and if your business is not incorporated, you often don’t need an FEIN. In these cases, you simply use your personal Social Security Number (SSN) as your tax ID.
Additionally, as indicated above, the FEIN is for federal tax forms. You may need to obtain a state EIN or EAN for state tax forms. Those numbers work as your state tax ID number.
Often, when referring to employer identification numbers, people simply drop the word “federal,” and, as a result, you may hear the abbreviation EIN. Don’t get confused. A federal employment identification number (FEIN) is the exact same thing as an employer identification number (EIN).
The only exception to this rule is in when someone uses the abbreviation EIN to refer to a state tax identification number. In that situation, the state EIN is not the same as a federal EIN.
Your FEIN is a unique number that identifies your business to the Internal Revenue Service (IRS). You can use this number for incorporated businesses, but you can also use EINs for sole proprietorships, partnerships, non-profit associations, trusts, estates of the deceased, and a variety of other businesses and organizations.
Once you have an FEIN, you can use this number on your business or organization’s tax returns, and you can also use the number to enroll in the electronic federal tax payment system, which allows you to make tax payments easily over the phone or online. You also need your FEIN for payroll forms, and in fact, you cannot hire employees until you have an FEIN. Note that if you run a small partnership or unincorporated sole proprietorship, you can issue payments to subcontractors without an FEIN. However, the government has strict criteria defining the difference between independent contractors and employees, and before embarking on any relationship with a worker, you should make sure that you meet the legal requirements and are classifying them correctly from a tax perspective. An expert can help you navigate these waters.
Once you have employees, you need your FEIN to remit payroll taxes such as Social Security contributions and Medicare premiums and income tax on behalf of your employees. You put the EIN on the tax forms and payments that you send to the government, and at the end of the tax year when you issue W-2 slips to your employees, you also put the numbers on those forms.
In addition to tax forms, you can also use your FEIN to open business bank accounts, apply for credit cards for your business, and take out business loans. To explain, imagine all the ways you use your social security number. You probably use it to open credit cards, set up cable or utility services, and for a variety of other purposes. Essentially, your FEIN plays the same role except it’s for your business.
SSN stands for Social Security Number. Like an FEIN, this number is also issued by the federal government. However, while an FEIN identifies your business to the government and other entities, a social security number identifies you personally to the government and other entities. In some cases, you can use your SSN as a business identification number, but usually, that only works if you have a very simple business structure with no employees. For instance, if you earn some 1099 income, you are technically considered a small business owner. So, you get to claim business deductions and you have to cover your own payroll taxes, but you may not need an FEIN and may be able to use your SSN on your income tax return.
There are a few different ways to apply for an FEIN. You can apply online, but you need your taxpayer identification number (for most people, that’s a Social Security number, but in rare situations such as if you aren’t a citizen, you may need to use another number). You also need information about your business, and, depending on the structure of your business, you may need information about co-owners, partners and other executives. Alternatively, you can fill out an application and fax or mail it to the government.
For most people, the most convenient option is to apply for an FEIN online. You can fill out the application easily from the comfort of your home, and you don’t have to worry about printing out forms, standing in line at the post office, or having to deal with an old-fashioned fax machine. You can also get help from a professional. They can guide you through the online application process, ensure that you submit all the necessary details, and answer any questions that you have.
7. How much does a FEIN cost?
Obtaining a FEIN does not cost any money – but it does cost you a lot of time. Like most government-mandated paperwork, you can expect to spend anywhere from a couple of hours to a day, if you’re lucky.
In most cases, there’s usually a lot of going back and forth. From gathering information to filling out the form on multiple pages… and then potentially having to resubmit because the IRS rejected your FEIN application due to a minor flaw.
But why go at it alone when you can get help? For a small fee, we can help you sort out your application the right way.
Our service cuts the time in half, saves you from the wild goose chase of paperwork, and supports you until you secure your FEIN – whether that’s by mail, fax, or online. How does that sound?
8. Who is eligible to apply for a FEIN?
Anyone can apply for an FEIN for their business that is operating in the United States or on U.S. territory.
Yes, it’s possible even if you don’t currently reside in the U.S. or are a non-U.S. citizen. Federal tax ID numbers are available for individuals with a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN).
You should note that only SSN holders can use the online method to apply for a FEIN. If you have an ITIN or other taxpayer identification number, you may only apply via fax or mail.
9. What is an entity type?
All organizations have to be registered as one of 10 entity types:
- Sole Proprietor / Individual
- Limited Liability Company (LLC)
- Church Organization
- Non-Profit Organization
- Personal Service Corporation
Entity types are determined by key factors that define the organization: such as how it primarily operates, how many shareholders are involved, and whether it is a for-profit or non-profit.
Since each entity type files taxes differently, it is crucial to review your organization thoroughly when registering with your Secretary of State.