An Employer Identification Number (EIN) is needed for most business entities such as a corporation, partnership, or limited liability company with multiple members. You do not need an EIN if you are a sole proprietorship or a single member limited liability company (LLC). You will require an EIN if you answer "Yes" to the following: Do you have employees? Do you operate as a corporation or partnership? Do you file employment, excise, alcohol, tobacco or firearms tax returns? Estates often require an EIN to probate assets of a deceased person. Personal service corporations may need an EIN for tax purposes. All non-profit organizations need an EIN before applying for tax-exempt status.
Registering for an EIN
Registering for an EIN enables some business actions needing a Social Security number. You likely need an EIN if:
- You have employees.
- You operate as a partnership.
- You file certain tax returns.
- You withhold taxes paid to a foreign alien.
- You have a Keogh retirement plan.
- You are involved with:
- an estate,
- trust,
- IRA,
- non-profit,
- real estate mortgage investment conduit,
- farmers’ cooperative,
- or a plan administrator.
The IRS uses your EIN to identify your business like your Social Security Number identifies you as an individual taxpayer. You also need a state Employer Account Number (EAN) separate from your federal EIN to pay state taxes. This is often called a state EIN.
Applying for an EIN
When applying for an EIN you will need:
- The legal business name.
- Business address.
An Employer Identification Number (EIN) is a nine-digit number used by the Internal Revenue Service (IRS) to identify businesses for tax purposes. Think of an EIN as a social security number for your business. An EIN identifies your business as a separate entity for tax filing and reporting.
Applying for an EIN is free through the IRS and takes little time. When applying, you need the legal business name and address. An EIN allows some business actions needing a Social Security number and enables tax filing.
Sole proprietors can use their Social Security number and don’t need an EIN. But even without employees or a corporation, an EIN can be useful to open business bank accounts or apply for business loans.
If you’re a single-member LLC, using your Social Security Number might be enough if your business has no employees and pays taxes as a sole proprietorship does. However, having an EIN provides security against identity theft since you won’t use your SSN on documents.
In contrast, multi-member LLCs get their own unique EIN. The IRS treats them as partnerships unless they choose to incorporate. Hence every partnership requires an EIN by federal law regardless of whether it has employees.
Sole proprietorships that do not employ anyone do not need an EIN. However, a sole proprietorship that taxes income paid to someone from another country must get an EIN. Furthermore, a sole proprietor who files tax returns for items like alcohol and firearms must acquire an EIN, even with no employees.
Benefits of Having an EIN
While an EIN identifies your business to the IRS and tracks reliable tax reporting, most US businesses need one to operate. There are exceptions. But even if your business doesn’t require an EIN, there are benefits in having one that helps growth and success.