An Employee Identification Number, often referred to by the abbreviation EIN, is a nine-digit number with which the Internal Revenue Service (IRS) identifies your business for tax purposes. In most cases businesses require an EIN in order to exist and to pay taxes. Also known as a federal tax ID number, it is used by those whose businesses can be classified as a sole proprietorships, corporations, partnerships, non-profit organizations, trusts or estates.

There are a few critical Employee Identification Number laws and regulations that you should be familiar with to make sure your business is off on the right foot as far as the IRS and the federal government are concerned. Make sure you are knowledgeable about, or have taken the proper steps, in regard to the following Employee Identification Number topics:

1. Select an acceptable option as dictated by Employee Identification Number laws and regulations when applying for an EIN.

2. Make sure to satisfy any state-specific employee identification laws and regulations based on where your business is located.

3. Keep tabs on updated Employee Identification Number laws and regulations.

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Select a proper option for applying for an Employee Identification Number

The IRS allows Employee Identification Number applicants four methods to submit an application: Online, by phone, by mail or by fax. Online submission is preferable and will give you the quickest results.

I recommend: The IRS website is a great resource that contains detailed information about the various ways to apply for an Employee Identification Number. It also contains information about other EIN regulations. Small Business Notes summarizes the four application options for EIN applications and explains the area of third-party authorization.

Satisfy any state-specific Employee Identification Number laws and regulations

To run a business properly with all the T's crossed and the I's dotted, it is important to meet federal and state requirements for taxation. This means checking with the state where your business will be located to make sure you are in compliance with any laws and regulations around new business establishment.

I recommend: If you are considering starting a business in California, refer to the State of California's Employment Development Department website, which includes links to state requirements for businesses. For those starting up in New York, be sure to read through the Division of Corporations page that discusses requirements for specific business types operating in New York State.

Keep abreast of updated Employee Identification laws and regulations

Similar to other laws and regulations, those governing EINs are subject to changes and updates. It is important to keep abreast of these changes to ensure your business is in full compliance where the IRS is concerned.

I recommend: CPA-Resource and the Louisiana Law Blog discuss some changes that took effect in January 2009 regarding disregarded entities.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Aside from establishing a new business, there are a few other unique circumstances that also require an Employee Identification Number. For instance, if you must administer an estate formed as a result of a person's death, or are changing the legal structure of an existing business (i.e. from an partnership to a corporation), you will need to get a new EIN.

An employee identification number is imperative to provide security and organization for your business. An employee identification number formula ensures that each of your employees has a unique number associated with their name. The thought of starting to set employee identification number for all of your employees may seem daunting but there is employee identification number help available.

Your first question about starting employee identification numbers for your business may be how you would benefit from them. A better filing system can result with using numbers rather than names because you can keep an order of the new employees who join your business. You can also use these employee identification numbers as a password for entry into buildings or computer programs. The possibilities of how to use employee identification numbers are endless. To start implementing your new employee identification number system, consider the following:

1. Calculate how many employees you have who need an employee identification number

2. Think of useful ways you can use the employee identification numbers

3. Employ an employee identification number formula

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Create badges with employee identification numbers on them

An employee badges is an excellent way to inform security that someone works for your company. You can have badges or IDs made by using employee identification number companies.

I recommend: Having an ID manufacturer come to your place of business to create badges is ideal. IDville website has employee identification number information as well as information on available products. If you would rather create badges yourself, consider Alpha Card for employee identification number advice on printers, cameras and software.

Use employee identification numbers of employees in your payroll system

When updating or creating a new payroll system, you want to make sure every employee receives the pay he or she is entitled. Using an employee identification number ensures your employees' payroll information is organized and virtually free from error.

I recommend: HRWorld.com has guides you can order on how to improve and create your payroll system. Medlin Software has payroll software available that will print checks after you enter payment information.

Install and program keyless door locks with an employee identification number for every employee

It's important to safeguard your employees and records. You can protect your office by using keyless door locks. Your employees can use their employee identification number to enter the office when they punch it into the keypad on the door.

I recommend: You can find many companies selling keyless door locks but you need to purchase one you will be able to program as many employee identification numbers as you have employees. Check out the Keyless Lock Store and Keyless Pro for some door lock options.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Never reuse employee identification numbers of past employees because it can compromise the security of your business.
• •  Always remember to delete the employee identification numbers of past employees from the keyless door lock system.

When a business wants to find out about getting employee identification number systems for employees, it may be a little confusing at first. Because there are radically different uses for assigned numbers to individuals, it's good for business leaders or HR staff to really take a good look at the web and sort things out. This page will explain some of what's going on with what some might call "employee identification numbers" and others will correctly refer to as "employer identification numbers," as well as covering the use of in-house employee identification number applications and uses with systems that are set up by the company.

For finding out about how either federal or company numbers are assigned, take a look at various web pages that will provide information based on the size of a business and the nature of its operations (regarding contracting), for:

1. Getting an IRS employee identification number that a business will need for referencing itself in tax filing if the owner is a sole proprietor.

2. Finding the federal employer identification numbers for freelancers who are employees but will be operating using an employer identification number that marks them as a business and shields them from using their social security numbers.

3. Looking at other uses of the employee identification number.

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Find resources for getting an employee identification number for business tax records

Here's a tricky one: The numbers that the IRS calls 'employer identification numbers' are often called employee identification numbers because they may apply to a very small company, a company of one, or a sole proprietor that is contracting work out. Make a distinction when you hear someone talk about an EIN and recognize that many may recognize this is a useage for an 'employee identification number.'

I recommend: Find out about using an IRS assigned EIN for tax purposes at Residual Rewards, where applications for sole proprietors or companies are covered. Get more on applying for an EIN directly from the IRS online.

Use an employee identification number as a freelancer and shield your Social Security information

Lots of freelancers are getting wary about phony employment opportunities 'phishing' online for Social Security numbers. If this is the case, a freelancer can get an EIN to use in place of a Social Security number, as defined above. Find out about this practice from websites advocating for the freelancer. Again, this number is correctly referred to as an EIN or employer identification number but many may refer to it as an employee identification number.

I recommend: Check out a page on how to use an EIN in place of an SS# for a freelancer at Today.com.

Utilize other employee identification number systems for in-house purposes

There are other systems for employee identification number setups that are based on randomly assigned numbers. These may be used for security, payroll or other in-house purposes generally not related to tax filing. Find out more at pages that demonstrate or explain the use of these employee identification number systems.

I recommend: See some news about how HR people use a list of employee identification numbers at TechRepublic.com. Or find out about how larger institutions assign employee identification number setups to keep identities straight from pages like this one from the Anoka Technical Institute.

If you are considering starting a business of any type, you should check to see if you need an Employer or Employee Identification Number, also known as an EIN. This is required of most business types so that the IRS can recognize your company and tax appropriately. It simply requires calling, faxing or mailing the IRS your application, though you can also apply online. Make sure to learn the key terms you will encounter before you apply.

Action Steps
The best contacts and resources to help you get it done

EIN

EIN is an acronym for Employer Identification Number, which is also often referred to as an employee ID number. It is a Federal Tax number that means your business is recognized by the Internal Revenue Service. Many different business types need an EIN before considering themselves an official business entity.

I recommend: The Internal Revenue Service website explains everything you need to know about an EIN.

IRS

The IRS is a government agency that is responsible for collecting taxes from people and businesses. For this reason, you have to go through the IRS to obtain an EIN for tax purposes.

I recommend: Get the definition of the IRS from wiseGEEK.

Business entity

Once you create a business and consider applying for an EIN, you will need to decide what type of business you have. The category your company fits into is called a business entity, and there are six main types.

I recommend: Visit Montgomery Law Office to get descriptions of the various business entities.

Sole proprietorship

A sole proprietorship is one of the most popular types of business entities created by those with an EIN. A sole proprietorship means you as an individual own the business, and you are not separated from your business legally. This means anyone who sues your company is actually suing you, and can take your personal assets.

I recommend: Justia gives the basics on a sole proprietorship.

Limited Liability Company

This occurs when two or more people, including families, create a company. In an LLC, owners do not get taxed double like corporation owners do, which is one perk. Many small businesses favor this type of business entity because it also offers more flexibility than a corporation does, as it can be either owner-managed or overseen by an assigned supervisor.

I recommend: Limited Liability Company Center provides a thorough explanation of a limited liability company.

Partnership

When two or more people own a business together and consider themselves co-owners, they are in a partnership. You can file business papers, such as a written agreement, but it is not required to file any documents to become a partnership.

I recommend: Nolo explains everything you need to know about partnerships.