EIN stands for Employer Identification Number. Employer Identification Numbers can also be referred to as Federal Employer Identification Numbers, Tax Identification Numbers, and Federal Tax Identification Numbers.
An EIN is issued to all corporations established in the US. The EIN is analogous to a Social Security Number (SSN). It is a way for the federal government to examine the status of any corporation operating inside the US. Any legal document sent to any branch of the federal, and sometimes a state, government requires one to list an Employer Identification Number.
The Employer Identification Number does not signify the type of status a corporation holds, but rather, helps to maintain adequate records. All companies, whether held by one person or by multiple people, have an EIN. An EIN also does not reflect taxable status. Both profit and non-profit corporations have them.
Other businesses may require an EIN to grant certain privileges to a corporation. For example, warehouse stores like Costco require an EIN to give users status as a business. Business owners receive in exchange certain privileges, like getting to shop half an hour to an hour earlier than regular shoppers. Corporations may also receive discounts because of their corporate status.
Potential creditors use the Employer Identification Number to determine creditworthiness of a business that wishes to borrow money. The EIN is a way of tracking the income and any debts of a company. Credit companies can score the EIN just as they would someone’s Social Security Number to determine whether they wish to lend money to a business, and if so, at what rate of interest they will lend money.
Like social security numbers, EINs have nine digits, but tend to be split into two, rather than three, sets of numbers. The first two numbers of the EIN are followed by a dash. The next seven numbers are grouped together.
It is fairly easy to apply for an EIN. One receives an EIN when the government has approved the articles of incorporation sent in by a new company. This number also protects business owners, especially the small business owner, from any personal debt responsibility, except in cases of misconduct. A person’s creditworthiness is not the same as that of a corporation that person may own. If the business ultimately fails, it is reflected in reports run on the EIN, not on the individual.
An exception to this is in the case of new small businesses. A new business cannot show much record of credit-worthiness as there is no time to establish it. In such cases, potential creditors may look to the owner of the company to assess whether to extend credit. Poor individual credit may make it difficult to obtain loans.
EINs should be memorized and guarded, as they are used so frequently, yet can be subject to identity theft. If one is a small business owner, knowing one’s EIN is important, as one may need to give it almost daily when a business is starting up. However, one should be certain that an EIN is not given out to anyone when it is not necessary to do so.