EIN (Employer Identification Number)

What it's for

An EIN does for your business what a Social Security number does for you: it identifies the business on federal tax filings. You'll use it on payroll tax returns, on the W-2s you give employees, on the forms you file for subs you pay, and on the W-9 a general contractor or property manager asks for before paying you. Banks usually ask for it when you open a business account.

When you need one

The IRS says you need an EIN if any of these apply ¹:

• You have employees, or you have to pay employment or excise taxes.
• You operate as a partnership, corporation or one of the other entity types on the IRS list, which includes LLCs.

A sole proprietor with no employees can often work under their own Social Security number. Many still get an EIN anyway, so their SSN isn't on every W-9 they hand to a customer. How a single-member LLC with no employees is treated has its own details, so confirm yours with a CPA.

Example: Marco runs a one-truck plumbing business as a sole proprietor. A property manager wants a W-9 before paying his first $900 invoice. He applies for an EIN online and puts it on the W-9 instead of his Social Security number. Six months later he hires a helper, and the same EIN goes on his payroll filings. The name and numbers are made up for illustration.

How to get one

Apply on IRS.gov. The online application is free, and if it's approved you get the number at the end of the session ¹. A few things to know before you start:

• It never costs anything from the IRS. Some websites charge a fee to file the same application for you; the IRS says you never have to pay for an EIN ¹.
• Have your details ready. You'll need the business's entity type and the Social Security number or taxpayer ID of the responsible party, the person who controls the business ¹.
• Finish in one sitting. The application can't be saved, and it times out after 15 minutes of inactivity ¹.

Common mistakes

• Paying a filing service for something the IRS gives out free.
• Thinking a DBA needs its own EIN. A sole proprietor needs only one EIN however many trade names they use ². A DBA is a name, not a new taxpayer.
• Keeping the old number after a change in structure. A sole proprietor who incorporates, or takes on a partner and runs the business as a partnership, generally needs a new EIN ². Check with your CPA when the business changes shape.
• Confusing the federal number with state accounts. An EIN doesn't register you for state payroll withholding, unemployment insurance or sales tax. Those are separate state registrations.

How it connects

The EIN is a tax ID, not a business structure. Forming an LLC, filing a DBA and choosing how you're taxed are separate steps. If you file as a sole proprietor, your business profit or loss goes on Schedule C whether or not you have an EIN. Once you start paying helpers, the number goes on whatever you file for them, so decide first whether each one is an employee or an independent contractor.