EIN Meaning: What Is an Employment Identification Number?
By Indeed Editorial Team
Published May 9, 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Canadian companies that do business in the United States need an Employee Identification Number (EIN). An EIN identifies businesses and is the United States equivalent of a Canadian business number. Any sized business, from a one-person sole proprietorship to a multinational corporation, needs an EIN to conduct business in the United States or U.S. territories. In this article, we explain what an EIN meaning is, when Canadian businesses may want to get an EIN, how to get one, how to pay taxes with an EIN, and examples of business types who may seek an EIN.
If you're wondering what an EIN meaning is, EIN refers to a nine-digit number issued by the Internal Revenue Service of the United States government. In the United States, every business has an EIN, also known as a federal tax number. This number never expires, is unique to each business, and identifies businesses for tax purposes.
The Internal Revenue Service is the administrative arm of the United States income tax system. The IRS enforces U.S. federal tax law, known as the Internal Revenue Code. Canadians or Canadian organizations that do business in the United States familiarize themselves with taxation matters to make sure they follow the law, including understanding the need for an EIN.
When do Canadian businesses need an EIN?
The primary advantage of getting an EIN is to operate your business in the United States. You may apply for the number before you begin your business, when you seek financial support, or when you prepare to sell products. Self-employed individuals, such as subcontractors, need an EIN as the primary contractors use it to report to the IRS business income paid to the subcontractor.
Canadian businesses get an EIN for several reasons. For example, the business can complete tax forms in the United States, known as W8 forms, to verify the business country of residence and pay the applicable tax. Other advantages of an EIN include:
Lowering your rates of tax withholding
Keeping your personal finances separate from your business ones
Protecting your personal information from identity theft
Setting up a United States bank account or electronic transfer financial account
Hiring U.S. employees or subcontractors
Filing a U.S. business tax return
Claiming an exemption under the Canada-U.S. treaty from U.S. income taxes on U.S. business profits
Exporting goods across the border to and from Canada and the US
Applying for an EIN
Applying for an EIN is free. You can complete the application by phone, fax, mail, or online. Applicants fill out "Form SS-4: Application for Employer Identification Number," which is available on the Internal Revenue Service website. Verified applications immediately receive an EIN. Your business can then use the number to comply with regulatory, legal, and financial laws. Keep your EIN and related documents safe for future and fast reference, particularly during yearly tax times or if you travel across the border for business purposes.
Information to apply for an EIN
The United States Internal Revenue Service provides an online form for Canadian businesses to apply for an EIN. The form asks for basic information about the business, such as its name or trade name, your personal information such as your title, first and last name, and your physical business address, and not a postal box address. Other information requested includes:
Reason for applying: Options include starting a new business, hiring employees, for IRS compliance, creating a trust, banking, changing your type of organization, or purchasing a business.
The primary activity of the business: Here, you list the sector that you operate in. This may include transportation and warehousing, construction, manufacturing, rental and leasing, wholesale, food service, retail, finance and insurance, or health care and social assistance.
Business operations questions: You answer questions like "Does the business own a highway motor vehicle weighing 55,000 pounds or more? Does the business involve gambling? Does the business sell or manufacture alcohol, tobacco, or firearms? If you expect to pay less than $4,000 in wages over the next calendar year, do you wish to file annual instead of quarterly taxes?"
Important dates: Include the date your business started, your accounting year-end, and your business telephone number and email account.
Submitting the online form: Most of the fields of the online form are mandatory. When you click submit, receiving an error message shows that information is missing. Successfully submitting the form gives you a message that they received your application.
Paying taxes with an EIN
Once you have an EIN, you can pay the taxes that you owe to the federal government for doing business in the United States. Online options allow you to pay your taxes. Be aware that tax treaties prevent double taxation and that speaking with an international tax expert ensures your business pays the right tax to the right jurisdiction.
After you calculate the taxes that you owe, you can submit them via an international money transfer. Once your business receives an EIN, it becomes your federal taxpayer ID number indefinitely, even if you never use it to file your tax returns. Closing the account with IRS involves you paying all the taxes owed and sending a letter with the legal name of your business, its address, its EIN, and the reason for closing.
Examples of businesses with an EIN
Canada and the United States of America share the longest unprotected border in the world. The two countries also have the largest trading relationship. Organizations on both sides of the border want to do business. The proximity to each other and the free trade agreement between the two countries encourage cross-border economic cooperation.
Having an employee identification number is an example of the cooperation between Canada and the US. The type of company is not relevant as what matters is that your Canadian business has some involvement in the US. The following are types of organizations that hold an EIN to do business:
Property rental businesses
Canadians who own U.S. rental properties engage in trade in the U.S. They make rental property income. Consulting a tax and legal professional helps you understand the costs and benefits of property ownership. Rental activity that qualifies as a business or as an investment is a tax consideration. The rental property is a business when you earn a profit. The IRS includes other relevant factors. For example, the number of properties you rent, your daily involvement, whether you negotiate short- or long-term leases, and the services under the lease.
If your organization sells products or services via e-commerce channels in the US, you may need an EIN. Certain marketplaces, vendors, and partners may require that you set up a United States bank account or incorporate it in the U.S. even without the legal requirement. If you have recently launched your business and are looking to expand into the U.S. as a first step, then you may seek a partner in the United States and incorporate with them.
Doing business online in the United States means following the law. For example, be aware of the anti-spam law. This federal law makes unsolicited email illegal, even though email marketing is a legitimate business marketing strategy.
Related: A Guide to Marketing as a Career
United States domestic corporations
Canadian businesses may establish a United States corporation to operate their business in the United States. Corporations organized under the laws of the U.S. as domestic corporations are subject to tax on their worldwide income. Canadian businesses often set up a U.S. corporation to hire employees and run an office or operation. American offices of a Canadian company warrant an EIN. Headquarters may exist in Canada with branch operations in the United States. Consulting tax and legal professionals provides guidance and advice.
Consulting and professional services
Professional services and consulting provide expertise, advice, and knowledge to customers and clients. You may run a consultancy or professional services operation in Canada with clients in the United States. Self-employed consultants in Canada sometimes work as contractors for United States firms. Getting an EIN can be helpful. You may operate your services and consultancy in the United States after consulting with a tax or legal professional. Ensure you apply for the EIN as part of your business planning to extend your firm's operations from Canada into the United States.
Please note that none of the companies, institutions, or organizations mentioned in this article are affiliated with Indeed.
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