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If you’re a business owner in the United States, you likely have a nine-digit Employer Identification Number (EIN). And, if you’ve had the same number for a long time, you might be wondering if it’s necessary to obtain a new EIN.
The short answer: Maybe. While an EIN will never expire, you must file for a new EIN if you make drastic changes to your business. A quick example of when you will need a new EIN is when you restructure your business from one type to another. For instance, if you convert from a sole proprietorship to an LLC, you’ll need a new EIN.
Thankfully, the IRS makes it easy to look up, apply for, and obtain a new EIN. Follow along as we unpack everything you need to know about when you need a new business tax ID and how to get one.
When Do I Need a New EIN?
Falling under a wider umbrella of Tax Identification Numbers (TINs), your EIN is like the business equivalent of a Social Security number (SSN). While an SSN serves as a tax identification for individuals, an EIN performs the same tax-related functions, but for a business.
If you never change your business, your EIN will never expire. Of course, that’s not always a realistic expectation. Growing companies constantly change, requiring owners and employers to apply for new tax IDs. If you’re unsure how you filed when you first obtained your tax ID, first look up and review your EIN.
Changing your name or location doesn’t require a new EIN. However, if you merge with another company, rearrange your corporate structure, or become a subsidiary of another business, you must reapply for a new tax ID.
The US tax code—especially regarding businesses—can get confusing. Let’s go structure-by-structure to determine when business owners need a new tax ID. Are you an LLC? Sole proprietor? C-Corp? S-Corp? Don’t worry—we have an answer for you!
Limited Liability Companies
LLC stands for “limited liability company.” The name is fairly self-explanatory; owners are not personally responsible for their business’s debts or liabilities. If the business goes bankrupt, it won’t hurt the owner’s credit score. Also, if someone takes legal action, they’ll take it against the business, not the owner.
Most businesses can operate as LLCs in all 50 states. (However, banks and insurers typically cannot.) In the end, it depends on your state’s tax regulations.
You’ll need to file for a new EIN if you began as a sole proprietorship but want to convert your business into an LLC. Furthermore, if a corporation files with the state to convert to an LLC and plans on using the tax classification of partnership, then it’ll need a new tax ID. That’s because the old corporation is considered “liquidated,” and the emerging LLC is a new entity. Single-member LLCs converting into multi-member LLCs also need a new EIN. Basically, anytime new owners are added or ownership changes hands, new EINs are necessary.
Additionally, if you have employees or want to open a business bank account for your LLC, you must obtain an EIN. Single-member LLCs without a business bank account can use their SSNs to file their taxes. That said, some states require all LLCs to have EINs to file state taxes.
Single Member LLCs with Employees
In 2007, the US Treasury introduced new regulations regarding single-member LLCs with employees.Treasury Regulation Section 301.7701-2. “Internal Revenue Bulletin: 2007-39“. Accessed August 25, 2023.
Let’s say you’re the sole owner of a residential real estate LLC, but you hire a property manager, a landscaper, and a receptionist. These rules will apply to you.
For federal income taxes, a single-member LLC is considered a disregarded entity and generally uses the owner’s SSN, not the LLC’s. As soon as employees become involved (as with the hypothetical real estate business), your LLC must obtain its own EIN.
In the most basic terms, a partnership is when two or more people own a business. They’re similar to sole proprietorships from an operations standpoint; partners share profits, responsibilities, and liability.
To determine whether or not you need to apply for a new EIN, ask yourself the following questions about your partnership:
- Did you incorporate it?
- Did your partner (or you) assume complete control of the business and now operate as a sole proprietorship?
- Did you end an old partnership and start a new one?
If you answered ‘yes’ to any of those questions, then you’ll need a new EIN.
C-Corps and S-Corps
Incorporating a business is when you convert your sole proprietorship or general partnership into a formal company recognized by the state. Incorporation transforms a company into its own legal business structure separate from the founding owners, thus requiring a new EIN.
While on the topic of incorporating a business, it’s essential that you understand the difference between S-Corps and C-Corps and how they determine taxation.
If you’ve grown your business to a point where you’re considering an initial public offering (IPO) or bringing shareholders into the fold, you’ll either become an S-Corp or C-Corp.
An S-Corp passes the income, losses, credits, and deductions to its shareholders. They do this to avoid the double taxation associated with C-Corps. That said, transforming into an S-Corp has its limitations. Your business must:
- Incorporate within the United States
- Offer only one class of stock
- Have 100 or fewer shareholders who meet eligibility requirements determined by the IRS
As mentioned above, C-Corps get taxed twice: The corporation pays taxes on earnings, and shareholders pay taxes on dividends. However, investors are only liable for their investment, as they’re not responsible for overall business liabilities. C-Corps are publicly traded companies and can have as many shareholders as they want. Mcdonald’s, Apple, and Starbucks are all prime examples.
Any corporation (C or S) will need a new EIN upon their formation and if any of the following statements are true:
- You received a new charter from the Secretary of State.
- You became a subsidiary of a corporation or are already a subsidiary, using the parent company’s EIN.
- You changed to a sole proprietorship or a partnership.
- A new corporation was formed after a statutory merger.
Sole proprietorships—unincorporated companies with only one owner—are the easiest businesses to form. They’re often known by the owner’s name, though they can still develop a brand and official business name. For example, a freelancer operating under their name would technically be a sole proprietor. And because there’s no legal separation, the owner is personally responsible for all business debts and liabilities.
As a sole proprietor, you’ll file taxes using your SSN and don’t technically need an EIN. That said, you’ll need a new EIN if:
- You’re subject to bankruptcy proceedings
- You incorporate or add partners and operate as a partnership
- You hire employees
- You’ve bought or inherited a business that you operate as a sole proprietorship
The Exceptions: Scenarios Where a New EIN Isn’t Required
You don’t need a new EIN every time you make minor adjustments to your business.
For starters, multi-member LLCs, partnerships, and corporations all require an EIN. Sole proprietorships do not. Sole proprietors can simply use their SSNs to file their taxes, as both SSNs and EINs are forms of tax ID numbers (TINs).
If you already have a business tax ID but you’re wondering if you need a new EIN, consider the following questions:
- Did you change the location or add new locations?
- Did you change the name of your business?
- Have you merged with a corporation using an existing EIN?
If the answer is yes, then you do not need a new EIN. You’re also in the clear if you’re an existing corporation electing to file under S-Corp status. Corporations and partnerships undergoing bankruptcy proceedings don’t need new EINs either.
If you change the name of your business, your EIN will transfer to the new name. You just have to let the IRS know as soon as possible. However, if you change names and bring on a new partner, you must apply for a new EIN.
So, You Need A New EIN. What’s Next?
If you’re wondering if you need a new EIN, the first question you should ask yourself is, “Do I have employees?” (After all, it’s an employer identification number.) If you don’t, you’re a sole proprietor and can continue using your SSN to file taxes. If you do, you’re an employer—and must obtain an EIN as soon as possible.
After obtaining or renewing your EIN, you’ll be able to apply for credit card processing support—the very next step on your business journey! Partnering with a merchant service provider offers the advantage of obtaining a customized payment solution designed to fit your specific needs. At PaymentCloud, we are familiar with assisting new businesses
Frequently Asked Questions About New EINs
What are the implications for a business when it changes ownership?
Any change in ownership requires a new EIN. Your EIN is like your business’s social security number. And much like your personal SSN, it can’t change hands. So, if someone takes over, they’ll need to file for a new EIN.
How can I apply for an EIN, and what is the process involved?
To apply for an EIN, you must first form your business structure. Once you have a legal business on paper, you can take the next steps regarding how to get an EIN.
Visit the IRS’s website to begin the application process. You’ll also need your Taxpayer ID (SSN, ITIN, or existing EIN).
Once the application is approved, you’ll receive your EIN immediately for online applications. Processing time may vary for other application methods.
Can subsidiaries share the same tax ID as the parent company, or do they require separate EINs?
No, subsidiaries and parent companies must have separate EINs for tax purposes. When subsidiaries are formed, they may use the parent company’s EIN at first. However, the IRS requires them to obtain their own eventually.
Can I utilize the same EIN for multiple businesses I own or operate?
Sometimes. If those businesses operate under one parent company or sole proprietorship, the IRS sees them as one business entity—and they may use the same EIN. Think of them as a “branch” on your overall business tree.
If your businesses are taxed differently (say, an LLC) then you’ll need separate EINs for each business.