What is a State Employer Identification Number?
Even if your business already has an EIN from the central government, you might also need to get a separate one from the state. Many businesses are required to have a State Employer Identification Number (State EIN) for each state where they pay taxes. In some cases, it can also help protect against identity theft, especially for sole proprietors.
- Since tax rules can differ from one state to another, business owners should check the local rules to see if they need a State EIN and how to apply for it.
Employer Identification Number example
An EIN is formatted as XX-XXXXXXX. For instance, an example of an EIN might be 12-3456789. This number helps the IRS track the business's tax obligations and filings. It's unique to each business and once issued, it is never reissued or reused by the IRS, ensuring that each business's financial and tax history is distinctly maintained under this unique identifier.
Why is an EIN important for businesses and other entities?
- Tax compliance and filing — Serves as the business's identification number for all federal tax returns, filings and correspondence with the IRS.
- Employing staff — Required for reporting payroll, withholding employment taxes and meeting federal employer obligations.
- Opening business bank accounts — Most US banks require an EIN before allowing a business to open a dedicated bank account.
- Establishing business credit — Helps create a credit profile for the business that is separate from the owner's personal credit history.
- Maintaining legal separation — Supports the distinction between the business and its owner, particularly for liability and compliance purposes.
- Obtaining licences and permits — Many business licences, registrations and permits in the United States require an EIN as part of the application process.
- Protecting personal identity — Allows sole proprietors to use an EIN on business documents instead of their Social Security Number (SSN), helping to reduce the exposure of personal information.
Who is required to obtain an EIN from the IRS?
Entities that must obtain an EIN include:
- Incorporated entities under the Company Act, 2013.
- Partnership practices including Limited Liability Partnerships (LLPs).
- Sole proprietors who employ others.
- Trusts, involved in trading or business activities.
- Estates with operational business activities.
- Non-profit organizations and charitable trusts.
- Any business entity that registers for excise, alcohol, or tobacco operations.
How to get an Employer Identification Number
There is no charge for obtaining an EIN, as the IRS issues it free of cost. Businesses can apply for an EIN through the following methods:
The IRS Online EIN Assistant, available on the IRS website, issues an EIN immediately upon successful completion of the application. This service is available to businesses whose principal place of business is located in the United States or US territories and whose responsible party possesses a valid taxpayer identification number, such as an SSN, ITIN or existing EIN. The application must be completed in a single session.
Applicants can complete Form SS-4 (Application for Employer Identification Number) and send it to the IRS by fax. If a return fax number is provided, the EIN is generally issued within approximately four business days.
A completed Form SS-4 may also be submitted by post to the IRS. Applications sent by post typically take around four weeks to process.
- By telephone (for International applicants)
Businesses and individuals located outside the United States that do not have a principal place of business in the country may apply for an EIN by contacting the IRS international EIN helpline. This option is particularly relevant for foreign entities, including Indian businesses, that need an EIN to conduct business activities or transactions in the United States.
For Indian businesses requiring a US EIN
An Indian business can obtain a US EIN even without a physical presence in the United States. This may be necessary for activities such as selling on US-based marketplaces, opening US payment accounts, or establishing a US business entity. In such cases, the business can apply by submitting Form SS-4 via fax or post, or by contacting the IRS international EIN helpline. The application must identify a responsible party; however, foreign applicants are not required to have a US Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) when applying through these methods.
Benefits of an Employer Identification Number
In India, the equivalent of an Employer Identification Number (EIN) is the Permanent Account Number (PAN) for businesses and Goods and Services Tax Identification Number (GSTIN) for those involved in the supply of goods and services. These numbers are unique to the businesses they are assigned to and do not expire. The same number is never reissued to another business, even if the original business is closed down.
The main advantage of obtaining a PAN or GSTIN is that it allows you to legally operate your business. You cannot run your business without one. You must apply for a PAN before you start your business operations. You also need a PAN for the following:
- Hiring and paying employees
- Opening bank accounts, obtaining credit, and investing surplus funds
- Maintaining limited liability protection
- Filing business taxes and registering for state taxes
Having a PAN and GSTIN also helps you keep your personal finances separate from your business. This ensures that your personal information is protected and shields you from identity theft.
Self-employed individuals, such as freelancers or subcontractors, do not require a PAN or GSTIN unless they meet specific thresholds for turnover or need to register for GST. However, it may still be a good idea for them to obtain one, as they must provide an identification number to those paying them for tax reporting purposes. A PAN can be used instead of other personal identification numbers to protect against identity theft.
Where Do I Find My EIN If It Is Lost?
If you once had a business identification number but cannot find it, you do not need to apply for a new one. Instead, try these methods:
- Look for any official notices or documents you received from the Income Tax Department when you applied for your PAN or GSTIN. These notices serve as confirmation that your business ID number was issued
- Contact the banks or financial institutions where you have used the number. If you used it to open a business account or apply for a loan, they should still have the number on file
- Reach out to any state or local authorities where you applied for business licensing. They should be able to assist in retrieving your lost PAN or GSTIN
- Locate the tax returns you have filed using your PAN or GSTIN. Your business tax ID number will be listed on these documents
- Call the Income Tax Department or the relevant state tax authority for assistance. They can help you search for your PAN or GSTIN if you provide the necessary identifying information and prove your authorisation to access the details
Closing your Employee Identification Number
Closing an EIN involves notifying the IRS to deactivate the business account linked to the EIN. This is typically done after the business has filed its final tax return and paid all owed taxes. The IRS requires a formal letter stating the reason for the closure, such as dissolution or the business ceasing operations, to finalize the process and prevent future tax liabilities.
Indian equivalent of an EIN: PAN, GSTIN, and TAN
India does not use Employer Identification Numbers (EINs). Instead, businesses operating in India are identified through different registration and tax identification numbers issued under Indian tax regulations. If you are an Indian business looking for the equivalent of a business tax identification number, the following identifiers are the most relevant:
| Identifier | Issued by | Purpose | Format |
|---|
| PAN (Permanent Account Number) | Income Tax Department | The primary tax identifier for a business. It is required for income tax filings, opening bank accounts and carrying out most financial transactions. | 10-character alphanumeric code (e.g., ABCDE1234F) |
| GSTIN (Goods and Services Tax Identification Number) | GST authorities | Identifies a business registered under GST. It is required for collecting GST, issuing GST-compliant invoices and filing GST returns. | 15-character alphanumeric code, linked to the state of registration |
| TAN (Tax Deduction and Collection Account Number) | Income Tax Department | Required for businesses responsible for deducting or collecting tax at source (TDS/TCS). | 10-character alphanumeric code (e.g., ABCD12345E) |
For most Indian businesses, PAN serves as the closest equivalent to a US EIN, while GSTIN and TAN are used for specific tax compliance requirements under Indian law.
Conclusion
An Employer Identification Number (EIN) is indispensable for businesses in the U.S., serving not only as a means to comply with IRS regulations but also as a tool for enhancing business credibility and operational capabilities. It facilitates a range of business activities, from opening bank accounts to applying for business loans and understanding the applicable business loan interest rate. Proper management and understanding of the EIN’s role and requirements can significantly contribute to the smooth functioning and growth of a business. Thus, securing an EIN is a critical step for any business starting its operations or expanding its reach in the marketplace.
