Why every Business needs an Fein Ein or Tax I’d Number
For employers in the United States, a tax ID number is critical to ensure compliance with Internal Revenue Service (IRS) requirements. This has not always been the case. For a historical perspective, step back in time to when the National Social Security Act was signed into law on August 14, 1935. This Act was a significant welfare plan for America’s workers and changed the landscape of government and business interactions with regard to individual employees. Businesses were required to register some twenty six million wage earners who would become eligible for the provisions of the Act related to pension payments for elderly citizens. As a result of the registry, Social Security Cards were subsequently issued to employees with identification of each worker. Starting in January 1937, employers were required to track and report, among other things, the employee social security number, wages and compensation subject to the Social Security Act provisions and the amounts of various taxes withheld on behalf of the employee and remitted to the federal government. This was a significant increase in administrative burden for businesses. The implementation of the National Social Security Act required a process to identify each business that participated in the program, which is now known as the Federal Employer Identification Number (FEIN). As the business documentation and paperwork began to flow into The Candler Building in Baltimore, the Social Security Administration (SSA) was formed with the task of validation and accounting for funds paid into the program by wage earners and payments from the program to the qualified pensioners.
Today, every business needs an FEIN in order to pay employees and to file business tax returns. To be considered a Partnership, LLC, Corporation, S Corporation, or Non-profit, every business must obtain an FEIN. Proprietorships may use their SSN on tax documents, and are not typically subject to registration for the FEIN. The numbering system consists of nine digits. In the beginning, the three numbers before the first hyphen was used to identify the issuing office. In recent years, computerized systems have eliminated the need for tracking the originating office. Additionally some numbers may now have additional digits at the end or occasionally an alphabetic (for example, P to represent a plan).
Business owners should obtain a FEIN before transacting business as a company. If you are active in business transactions and do not have the number, do not delay your filings. Identify “Applied For” and the date of your application in the space shown for the number on any forms that you are submitting to the IRS. The FEIN process is easy for new businesses and the registration is a free service offered by the Internal Revenue Service atwww.irs.gov.
