Do I Need an Employer Tax ID Number (or EIN) for My Business?

The Employer Identification Number (EIN) is, for the IRS at least, the business equivalent of an individual’s Social Security Number; it pro...

The Employer Identification Number (EIN) is, for the IRS at least, the business equivalent of an individual’s Social Security Number; it provides an identifying number for business entities. Most businesses have EINs, but not all businesses have to get them. You'll always have to get an EIN if you plan to hire people, but if you're working on your own, you could get by without one.

Do I Need an Employer Tax ID Number (or EIN) for My Business?
Generally, businesses need an EIN. One exception is a sole proprietor with no employees. However, sole proprietors who must pay federal excise or payroll taxes will need an EIN, too.... If you need to apply for an EIN, complete Application for Employer Identification Number (IRS Form SS4).

There are circumstances in which sole proprietors—self-employed people working on their own—do need EINs. First, you always have to get an EIN for your business if you get involved in bankruptcy proceedings. It allows the government and your lending institution to monitor the business and serve the proper accounts. If you enter into a partnership with another person, even if that person doesn’t plan to participate actively in the business, the partnership has to get an EIN. And, surprisingly, you have to get that ID number if you purchase or inherit an already established business (but not if you just change your business's name or location).

There are reasons for sole proprietors to get EINs, even if they’re not required to do so by the IRS. Most importantly, you can give your EIN to clients who need it to complete tax forms, rather than your Social Security number. EINs are much less susceptible to identity theft than Social Security numbers.

Corporations can arguably avoid getting EINs, although if you start as a sole proprietorship and then incorporate, you have to get one. The IRS states that you only have to have that EIN if you get a new charter from your secretary of state, decide to change your business's form, or create your corporation out of a statutory merger. In general, though, it's best to assume that if you have a corporation, you'll need to get an employer tax ID number. In some cases, you may be able to avoid the identification process if you choose to be treated as an S corporation and meet your state's requirements for a closed corporation. Such exceptions are fairly rare, though, and it's best not to rely on them.

Obtain Your Federal Business Tax ID

An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN. You may apply for an EIN in various ways, and now you may apply online. You must check with your state to determine if you need a state number or charter.

Determine Your Federal Tax Obligations

When starting a business, you must decide what form of business entity to establish. Your form of business (e.g., sole proprietorship, partnership, LLC) determines which income tax return form you have to file. The federal government levies four basic types of business taxes:
  • Income tax 
  • Self-employment tax 
  • Taxes for employers 
  • Excise taxes
To learn more about these taxes, visit the Internal Revenue Service's (IRS) Guide to Business Taxes

State Income Taxes

Nearly every state levies a business or corporate income tax. Like federal taxes, your state tax requirement depends on the legal structure of your business. For example, if your business is an LLC, the LLC is taxed separately from the owners of the business, while sole proprietors report their personal and business income taxes using the same form used to report their business taxes. Consult the General Tax Information link on the State and Local Tax Guide for specific requirements.

This article contains general legal information and does not contain legal advice.
This article is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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