Many new business owners ask, “What is an FEIN and does my business need one?” FEIN is an acronym for federal employer identification number. Some employers consider it a tax ID or Social Security Number (SSN) for their business, however, not every business type is required to obtain one.
The necessity to have an FEIN depends on many factors, including but not limited to the business’s structure, whether it employs people and various other considerations. Given these variables, it is essential for new business owners to familiarize themselves with the business structure they wish to engage in and what the FEIN means for their respective organizations.
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What is an FEIN?
An FEIN is the identifying number that the federal Internal Revenue Service (IRS) uses to identify a business based on payroll and tax records. This form of identification applies to businesses that have employees and/or are incorporated. If a business is a sole proprietorship and does not have employees, the IRS will use the business owner’s SSN as a tax ID.
Some states require their own employer identification number (EIN) or employer account number (EAN) in addition to the FEIN. These numbers should be included on payroll records and all correspondence sent to the federal IRS and state tax agencies. Doing so makes it possible to accurately track Social Security Administration (SSA) contributions, Medicare premiums and any other additional tax information. Business owners should review their state’s specific requirements.
A FEIN has nine digits displayed as XX-XXXXXXX.
Who needs an FEIN?
A business may require an FEIN if it meets any one of the following criteria:
- Has employees
- Operates as a corporation or partnership
- Files tax returns related to employment, excise (sin tax), alcohol, tobacco or firearms
- Withholds taxes on income, other than wages, paid to a non-resident alien
- Has a Keogh plan, or tax-deferred pension plan
Business owners who are unsure if they need a FEIN should check with a tax attorney for specific guidance related to their business operations.
Are there other cases where an FEIN is required?
Businesses that operate as one of the following types of organizations may also need a FEIN:
- Trusts (except certain grantor-owned revocable trusts), individual retirement accounts (IRAs), exempt organization business income tax returns
- Real estate mortgage investment conduits
- Non-profit organizations
- Farmers' cooperatives
- Plan administrators
How can employers apply for an FEIN?
Businesses located in the United States or U.S. territories can apply for a FEIN online free of charge. The IRS prefers online applications, though employers have the option to apply via mail or fax by completing Form SS-4, Application for Employer Identification Number. International businesses must apply by telephone or by mailing or faxing Form SS-4 to the IRS.
When applying for a FEIN, business owners must disclose the name and taxpayer ID number of the responsible party who controls, manages or directs the applicant entity and the disposition of its funds and assets. This role is typically fulfilled by an individual, such as the true principal officer, general partner, grantor, owner or trustor. In the case of government entities, an entity may be designated as the responsible party.
Daily application limitations
In the interest of fairness, the IRS has daily application limits for FEIN, meaning that a responsible party may only be issued one number per day. This policy applies to all application methods – online, mail and fax.
When do employers need to change their FEIN?
Certain transformations in a business may necessitate a new FEIN, though this requirement largely depends on the type of change that occurred and the business’s structure, e.g., sole proprietorship, partnership, corporation, etc. For example, changes in ownership or business structure require a new FEIN.
Business name changes do not always require a change in FEIN, but there are exceptions. Business owners should consult their legal counsel to determine if circumstances warrant an FEIN change.
Frequently asked questions about the FEIN meaning
What is the difference between an FEIN and a tax ID number?
An FEIN is a type of tax ID number, much like a Social Security Number (SSN) or an individual tax ID number (ITIN). The key difference is that an FEIN is used by employers and certain business entities, whereas an SSN and an ITIN are used by individual taxpayers.
Is an FEIN public?
Yes, an FEIN is often public information and can be identified via the IRS, especially if the business is publicly traded. An FEIN may also be disclosed in business-to-business engagements, business operations and financial transactions. However, the IRS encourages business owners to use discretion when sharing their FEIN to prevent fraud.
What if I'm not sure I need an FEIN?
The IRS provides access to an FEIN questionnaire on its website. If employers answer yes to any one of the questions, they need an FEIN. It may also be prudent to contact a tax professional and/or tax attorney for support.
Where is the FEIN number on W-2 forms?
Employees can find their employer’s FEIN number on W-2 forms in Box B, just before the employer’s name and address.
This article is intended to be used as a starting point in analyzing FEIN and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services. Should there be a need for specific guidance relating to a business, please seek your respective legal counsel.