When Wouldn't Somebody Need an EIN?

One of the steps in starting a business is registering for a tax ID number, known as an employer identification number or EIN. Although it is common practice for businesses to utilize this number, it is not always necessary. There are situations in which an individual might choose not to apply for an EIN.

Sole Proprietors and LLCs

The only two business entities that have the option to not get an EIN are sole proprietors and LLCs. Rather than using an EIN, business owners can use their personal social security number instead. The criteria in which a business would not need an EIN include:

     Not having any employees
     Not choosing to be taxed as a corporation or S-corporation
     Not paying excise tax
     Not having multiple owners or members
     Not paying employment tax
     Not being a sole proprietor undergoing bankruptcy proceedings
     Not selling certain items, such as firearms or alcohol
     Not withholding taxes from income paid to a non-resident aliens

If you choose to change your entity type, especially if you become a partnership or corporation, you will have to get an EIN. You also will need an EIN if you buy or inherit an existing business or you have certain retirement plans.

Working Without an EIN

Small businesses that fulfill the above requirements can choose to utilize the owner's social security number rather than getting an EIN. Generally, businesses that do so are small enough that there are no employees and no need to hire independent contractors for more than $600 worth of work. Examples might include independent contractors, consultants and artists.

However, even when you are not required by law to get an EIN, it can provide many benefits. For one, it protects the identity of the business owner, especially when having to sign many different 1099 forms or other contracts to perform work. Furthermore, some business banking accounts and lines of credit require an EIN.

If you are unsure whether you have an EIN number, then you can use this EIN number lookup tool. Those who wish to apply for one, contact IRS-EIN-Tax-ID to start the process.

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