Definition
A nine-digit number the IRS assigns to businesses and other entities for tax filing, free of charge.
What it means
An employer identification number, or EIN, identifies a business to the IRS, much as a Social Security number identifies a person. You need one if you have employees, operate as a corporation or partnership, file certain excise or employment tax returns, or meet other conditions. Many sole proprietors without employees can use their SSN, but some choose an EIN to avoid sharing their SSN with clients, and banks often ask for one to open a business account. Applying is free through the IRS website and an EIN is usually issued immediately online; be cautious of websites that charge a fee. The responsible party for the business must have a valid taxpayer identification number. The format is XX-XXXXXXX.
Example
A home bakery owner who hires a part-time helper for $15 an hour needs an EIN to report payroll taxes on Form 941 and give the helper a Form W-2.
Illustrative numbers only. Your situation will differ.