An Employer Identification Number (EIN) is a key component for running a legitimate business in the US. It's not just for the Internal Revenue Service (IRS) to keep tabs on you – it's your business's ID for everything from filing taxes to opening a bank account, and it keeps your business finances separate from your personal accounts. If you're working with vendors, applying for credit, or hiring employees, you'll generally need an EIN to operate.

An EIN is also useful for growing your business. It makes it easier to set up payroll, secure a loan, establish operations abroad, and access certain tax benefits. Below, we'll explore more about the benefits that can come with obtaining and using your EIN – no matter what stage your business is at.

What's in this article?

• What is an EIN?
  
• Why do US businesses need an EIN?
  
• How an EIN simplifies business tax filing
  
• What are the benefits of an EIN for hiring employees?
  
• How to use your EIN to open business bank accounts
  
• What are the advantages of an EIN for building business credit?
  
• How an EIN supports international business operations
  
• How to apply for an EIN
  

What is an EIN?

An EIN is a unique nine-digit number assigned by the IRS to identify a business entity for tax purposes; it's similar to a Social Security number (SSN), but for your business. It's used for filing taxes, applying for business licences, opening a business bank account, and other financial and legal activities.

Why do businesses need an EIN?

If you plan to hire employees, operate as a corporation or partnership, or meet other IRS requirements, you'll need an EIN. Even limited liability companies (LLCs) and sole proprietors without employees might still want an EIN to help separate their personal and business finances.

How an EIN simplifies business tax filing

If your US business is structured as a corporation, partnership, or if you have employees, an EIN is required. You need an EIN to file tax returns and handle other tax obligations such as payroll taxes, Social Security contributions, and unemployment insurance. Many states also require an EIN for tax filings for sales tax, excise taxes, or state payroll taxes.

Even businesses that don't have a legal requirement to use an EIN for taxes might have reasons to do so. An EIN separates a business from its owner's personal identity, which can be especially important if a business owner is managing multiple entities or revenue streams. Using an EIN ensures each revenue stream is allocated correctly and distinctly, and it helps keep each business's tax records organised. Tying all returns, payments, and inquiries to a single entity's EIN (rather than lumping every tax form under an SSN) makes it easier to report income, claim deductions, or apply for credits for that business. It creates a clear trail for audits and compliance, and it can help avoid potential issues down the line.

What are the benefits of an EIN for hiring employees?

If you have employees in the US, you need an EIN. An EIN is a legal requirement from the IRS and benefits administrators that allows you to:

• Issue W-2 forms, set up payroll systems, and handle federal employment taxes

• File Form 941 (Employer’s Quarterly Federal Tax Return)

• File state-level employment taxes

• Offer benefits such as health insurance, retirement plans, or stock options

How to use your EIN to open US business bank accounts

You typically need an EIN to open a business bank account. Having an EIN proves that you're an official, registered business and that the account will be used for business purposes.

To open a business bank account, you'll need to provide your EIN, your business formation papers (such as LLC or incorporation documents), any applicable business licences, and documentation that shows who's in charge if you have partners.

Once the bank has your EIN on file, you can choose the type of account that fits your business, whether that's a current account for daily expenses or a savings account for building up your cash reserves.

Having a business bank account is the easiest way to separate your business and personal finances, and it simplifies financial tracking in case you're audited. If you apply for a loan or business credit, the lender will check your business account history to get a sense of your financial health.

What are the advantages of an EIN for building business credit?

When you use an EIN for your business's finances, you can start to build a credit history for that business. Here are some reasons why it's a good idea to get an EIN rather than using your personal Taxpayer Identification Number (TIN) for your company:

• Separating business finances from personal: Using an EIN keeps business credit separate from your personal credit. This means any financial issues in your business won't affect your personal credit score. It also limits your personal liability in the event of legal action.

• Applying for credit: Most business credit cards require an EIN to apply. Business credit cards often offer custom rewards tied to business expenses, and having a business credit card linked to your EIN can help build your business's credit score.

• Establishing credibility: Lenders, banks, and credit agencies regard an EIN as a sign that your business is legal and established. They also check the EIN's credit history when you apply for loans, credit lines, or vendor financing; a strong credit history can lead to better terms or vendor discounts.

How an EIN supports international business operations

If your business operates internationally, an EIN can both be a legal requirement for tax purposes and a helpful way to signal legitimacy to foreign business partners. Here's how an EIN impacts doing business outside the US.

International banking

Some banks abroad require US-based businesses to have an EIN in order to open business bank accounts, as proof that your company has registered with the US government. An EIN makes it easier to conduct financial transactions abroad and establish international banking relationships.

Tax regulations

The IRS requires US businesses to report foreign earnings. An EIN is necessary for filing international tax forms and reporting foreign assets in compliance with both domestic and international tax obligations.

Import and export licensing

For businesses involved in importing or exporting goods, an EIN is often required when applying for licences or permits. An EIN is tied to a business's identity, making it easier to navigate customs enforcement and meet US trade rules.

International clients and vendors

An EIN can make it easier to handle contracts, payments, and other legal processes with international clients or vendors. It provides a layer of legitimacy and formality to a business's operations, and it can give international partners confidence that they’re dealing with a recognised business entity.

Tax treaties

The US has tax treaties with many countries, and an EIN is typically required to claim any tax benefits that might apply to your US business under these agreements. These treaties can help reduce double taxation on business income earned in other countries, but you'll likely need an EIN to qualify.

How to apply for an EIN

Start by collecting information such as your business's legal name, trade name (if applicable), business structure (e.g. LLC, corporation), reason for applying (e.g. starting a new business, hiring employees), and the responsible party's personal information (usually the owner or principal officer).

You can apply for an EIN online, by post, by fax, or by phone. If you're applying online, your principal business must be located in the US or US territories. Make sure to follow the prompts and fill out the required information. If applying online, you should receive your EIN immediately upon completion if everything is in order. For postal or fax applications, you'll need to download and complete Form SS-4.

Applying online is the fastest and most convenient method. Applications by post are typically processed within four weeks, while you generally receive your EIN within four days if applying by fax. International applicants without a US address or TIN can apply by calling the IRS.