What is an EIN and Why Do Government Contractors Need One?

marketing May 30, 2020

Starting a small business involves a new learning curve for each of us. Those of us who have started multiple businesses just take certain steps based on our experience and forget what our first time was like. One of the first legal steps is to get an EIN, but what is it?

An Employer Identification Number (EIN) is a unique Tax Identification Number (TIN) made up of nine (9) numbers and assigned by the Internal Revenue Service (IRS). EINs are used for tax purposes as well as verification of your business status with commercial vendors such as banks.

In my 20 years in federal government contracting, I often felt confused about EINs, DUNS numbers, and CAGE Codes. What’s the point of all of these? Well, turns out there is a very legitimate need for each of the unique identification numbers, including an EIN which I explain below.

What is the Purpose of an EIN Number?

An EIN is one of four key numbers related to your business.

  1. Social Security Number (SSN) | This is assigned to you by the Social Security Administration (SSA), primarily for social security benefits. But the Internal Revenue Service (IRS) uses it as your individual Taxpayer Identification Number (TIN). This is the unique identifier of the business owner… you.

  2. Company’s EIN | The Employer Identification Number (EIN) is assigned to companies by the Internal Revenue Service (IRS), primarily for tax purposes. Think of the EIN as the social security number for your company; it is the unique identifier of the business.

  3. Company’s DUNS number | The Data Universal Numbering System (DUNS) number is assigned by Dun & Bradstreet (D&B), a commercial company that the federal government contracted with to provide unique identifiers. While your social security number and EIN are sensitive, private information and shouldn’t be broadly shared, the DUNS number was designed to be publicly shared as a unique identifier.

  4. Company’s CAGE code | The Commercial and Government Entity (CAGE) code is the full name of this unique identifier, but in government contracting we just use “CAGE code” when referring to it. CAGE codes, created in a nonproprietary system created by the Department of Defense (DoD), are assigned and managed by the Defense Logistics Agency’s (DLA) CAGE Program Office. Unlike your social security number and company’s EIN, CAGE codes are designed to be publicly visible, unique identifiers.

Do I Need an EIN?

EIN numbers are assigned to businesses (entity) that:

  • Have employees
  • Operates as a Corporation or Partnership
  • Files tax returns (e.g. Employment, Excise, or Alcohol, Tobacco and Firearms
  • Withhold taxes on (non-wage) income paid to non-resident aliens
  • Have a Keogh Plan
  • Involved with certain trusts, estates, REMI conduits, non-profits, farmer’s coop’s, plan admins

The question of whether you need one is a lot easier to explain as it relates to small businesses wishing to sell to the federal government.

Some businesses, such as sole proprietaries, can register to sell with the federal government using their social security number. But why would you do that?

Your social security number is the most sensitive of your identification numbers and you don’t want it out in the public databases if you can help it.

If you plan on being successful selling to the federal government customer, then you probably also plan on hiring employees. That’s enough to confirm you’ll need an EIN.

Most small businesses wishing to sell to the federal government will need an EIN from day one. For the rest of you, apply for an EIN and come to the federal sector prepared to grow. It is free and takes minutes.

How Do I Get an EIN?

Visit the Internal Revenue Service’s website directly to apply for an Employer Identification Number (EIN) online. It is free and quick.

First, “Determine Your Eligibility” – the business much be in the U.S. AND you must have your own taxpayer identification number (generally your SSN).

Second, “Submit Your Application” – this can be done online (Monday through Friday, 7AM to 10PM eastern time) or using the IRS Form SS-4 to provide the necessary information.

The process to complete the application will take you less than 10 minutes. Come prepared with the information described in the IRS Form SS-4 even if you’re applying for an EIN online.

Does an EIN Expire?

EINs do not expire. Not only do they not expire, the IRS cannot cancel an EIN. The EIN is never reused or reassigned to another entity.

Once the IRS issues an EIN, it becomes a taxpayer identification number (TIN) for that business or entity – TINs are part of the permanent federal record system and can’t expire or be canceled.

You can choose to CLOSE your EIN account with the IRS if necessary. This will be part of shutting a business down, but your EIN will never be reused.

Should I Put My EIN number on My Website?

For a small business owner of a company selling to the federal government, an EIN is one of four unique identification numbers related to their company. Keep it secret! Keep it safe!

Often, small businesses owners are concerned about sharing their DUNS number and CAGE code on their company website and other marketing material. Go ahead and put those on your website – they were designed specifically to be publicly available unique identifiers.

But, your social security number (SSN) and your Employer Identification Number (EIN) are sensitive information and should not be publicly shared. You will provide it in the System for Award Management (SAM.gov) but GSA will keep it secure and not share it along with your other, less sensitive data.

Is an EIN Needed to Sell to the Federal Government?

In order to sell to federal departments and agencies such as the Department of the Navy, Department of Health and Human Services (HHS), or the Internal Revenue Service (IRS), you must register your company in the System for Award Management (SAM.gov).

A DUNS number is required for SAM registration, and in order to get a DUNS number you must provide Dun and Bradstreet (D&B) with a valid taxpayer identification number (TIN). Your TIN will either be your social security number (SSN) or your Employer Identification Number (EIN).

But, as you read earlier in this blog, it is highly recommended that you apply for an EIN even if you don’t need one, so you can protect your social security number and your identity.

For a small business expecting success selling to the federal government yes, an EIN is needed to sell to the federal government. Take the 10 minutes and go get one if you haven’t already.

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