The Wealth Spa

When do you need a Tax ID number or EIN for your business?

Posted on 31. Jul, 2007 by Elizabeth Potts Weinstein in Legal

Question:  “Do I have to get a tax ID number or employer identification number (EIN) to run my business from home?  Can I just use my social security number (SNN)?”

Answer:  It depends.

Let’s start at the beginning.

A tax ID number or employer identification number (EIN) is a number you get from the U.S. federal government that gives an identification number to a business, much like a social security number does for a person.  States also issue tax ID numbers (unlike the social security number system, where you use the same number for both federal and state dealings, you must get a separate number for each state).  This ID number is what you use for tax filings and other dealings with the government.

If you have a business that is not incorporated and is not an LLC, and you are running it as a sole proprietorship (the default if you have not formed a business entity), your default tax ID number is your own social security number.  If you form a business entity (corporation or LLC) or partnership, which is technically a separate “person” from you (even if you are the sole owner and the only worker), then you must get an tax ID number for that business.  You must also get an EIN if you hire employees, because you need that number for your payroll tax filings.

Even if you are not required, you still may want to get a tax ID number for your business.  Why?  Because you don’t want to have to list your personal social security number every time you file out an application for a business credit card or sign a business contract. 

Getting a federal tax ID number is free and easy.  Just fill out a form on the IRS website and you get the tax ID number immediately online, with no waiting.   You are not changing your tax status (if you are a sole proprietorship you are still a pass through tax entity) and do not have any additional paperwork or taxes, just from getting the ID number. 

For more information, check out the IRS’s explanation of Employer ID Numbers.  

Photo courtesy of Beatrice Murch (blmurch) on Flickr. 

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Tags: ein, employer identification number, federal tax id number, Govt Rules & Regulations, tax id, tax id number, Taxes