Does an LLC Need an EIN?
The entity type you choose for your company impacts many aspects of doing business. An LLC offers business owners some significant advantages, including tax benefits. When founding an LLC, you must educate yourself on the pertinent laws and requirements. One of them involves the rule around an Employer Identification Number (EIN). The regulations differ for single-member and multi-member LLCs and whether or not you choose to be taxed as a corporation, S-Corp, or sole proprietorship.
An EIN is an identification number used and issued by the Internal Revenue Service (IRS) to identify a company when filing taxes and reporting employee income.
What is an EIN?
An employer identification number (EIN) is a unique ID number issued to a business by the IRS. Companies use their EIN when paying employees, filing taxes, and opening bank accounts. It is similar to a Social Security number for individuals. In some cases, an EIN is called a taxpayer identification number (TIN).
Who Needs an EIN?
A sole proprietorship is the only type of business structure that does not require an EIN. In this type of business, the business owner files their taxes using their Social Security number. Sole proprietorships, partnerships, and even some LLCs also use this type of pass-through taxation. Even though sole proprietorships don’t need an EIN, they can certainly obtain one to streamline things at tax time and for banking purposes.
The business types that do require an EIN are:
Any business entity that hires employees must legally have an EIN to function in the United States.
- LLCs
Single-member LLCs may not need an EIN, but they can get one to make opening a business bank account easier. Giving out the EIN instead of their Social Security number also helps them protect their identity. The IRS requires multi-member LLCs to have an EIN.
- Sole Proprietorships
If a sole proprietor hires employees or wants to open a business-only bank account, they need an EIN.
- Other Entities
Partnerships, corporations, trusts, and even estates must also obtain an EIN to operate legally in the U.S. The IRS issues and enforces laws regarding EINs.
Can You Have an LLC without an EIN?
Technically, you can have an LLC without an EIN, but only in specific cases. All multi-member LLCs must have an EIN with the IRS, regardless of whether they have employees or pay taxes as a partnership or corporation.
As long as a single-member LLC elects to file taxes as a sole proprietorship (not a corporation), the IRS considers it a “disregarded entity,” and in that case, you do not need an EIN. Instead, all the LLC’s income is treated as personal income and reported on the owner’s tax return. These laws can be confusing, leaving you still wondering, “Do I need an EIN for my LLC?”
EINs are not exclusive to LLCs. Many different types of business entities exist, and most of them have an EIN to use for their company. The short answer to the question, “Can you get an EIN without an LLC?” is yes, you can, and if you have any type of business, you should, as it offers you some great benefits.
Do I Need an EIN for My LLC?
Whether you need an LLC for your EIN depends on several factors, such as your business size, structure, and operations. Smaller LLCs may not initially need an EIN until they grow and start hiring employees. Filing taxes under your SSN will help keep things simple and avoid double taxation. However, once you file for an EIN, you can file taxes under it.
The instances where you must obtain an EIN for your LLC are as follows:
- You pay full-time or part-time employees to help with operations.
- You pay payroll taxes.
- You pay taxes on goods, services, and other items as outlined by the IRS.
- You manufacture, consume, or sell coal, kerosene, and imported chemicals.
- Your LLC has more than one member, or you take on a partner.
- You restructure as a corporation.
- You have a Keogh plan or solo 401(k) retirement plan.
- Your organization is tax-exempt (even if you don’t have employees).
- You choose to be taxed as a C or S corporation.
- You file for bankruptcy.
You don’t need an EIN with an LLC if:
- You own all the business assets.
- You run all operations yourself.
- Your business isn’t a separate legal entity.
- You are the only LLC member.
- You report all your income and deductions on your personal tax return.
Even if your company is a disregarded entity or you don’t need one, you can still obtain an EIN, as there are benefits to doing so. You can file your taxes using either your Social Security number or EIN.
Benefits of Having an EIN
Regardless of whether you need one or not, there are significant benefits to having an EIN. An EIN can provide you with the following benefits:
- Business Bank Account
Having an EIN allows you to open a business bank account linked to your EIN.
- Keeping Things Separate
An EIN makes it easier to keep your business and personal finances separate, which makes things smoother at tax time. Separation also ensures your personal limited liability if things go wrong later. Use your EIN on business documents and separate all personal and business assets. In the event of a lawsuit, you will want to show evidence that you kept everything separate.
- Helps Prevent Identity Theft
You can supply vendors, clients, and suppliers with your EIN instead of your Social Security number, which helps prevent identity theft. Giving out your SSN to many people leaves you vulnerable to identity theft.
- Builds Credibility
LLCs that use an EIN are respected more, which lends legitimacy to their businesses. Clients and vendors will take them more seriously if they have an EIN.
- Preparing for Future Growth
If you ever intend to grow or take on employees, having an EIN will make it a smoother transition.
- Establish Business Credit
Using an EIN will build credit with the top three credit bureaus, especially if you tie it to bank accounts, vendor agreements, and loans. Building business credit is a massive benefit if you ever need to borrow funds.
When Filing Taxes, Do I Use My SSN or EIN?
It depends on your size and business structure. You can use your Social Security number to file your taxes if you are a single-member LLC and have no excise tax liability. In this case, it’s called “pass-through taxation,” and the company income/profits will appear on your federal income tax return as personal income. Pass-through taxation is a benefit, and along with avoiding double taxation, it also allows you to take all the profits from the business yourself.
If you have employees or multiple members or incur other types of taxes like sales tax, you must file your taxes using your EIN as a legal entity and not as an individual. Filing using your EIN provides more personal privacy, and you don’t have to give out your SSN to clients or vendors. Using an EIN and filing your taxes through it offers you more flexibility to hire employees, pay employment taxes annually, and structure your business differently. You can also take specific tax deductions unavailable to owners who file as individuals.
How to Get an EIN for an LLC
Getting an EIN is pretty easy, and you can use one of two methods to obtain one. They are as follows:
- By Mail
Visit the IRS website and download Form SS-4 and print it out. Complete the form with all the information required (see below). You can fax your completed form to the number listed on there. If you use fax, the IRS will fax you back a confirmation letter with your new EIN within four business days. Alternatively, you can mail the form to the IRS using the address printed on the form. You may have to wait a bit longer for your EIN to arrive by mail.
- Online Application
You may also choose to submit your application to the IRS digitally. Visit the IRS website and use their online application tool; fill out all the fields and submit. Once you have completed and submitted the online application, you will immediately receive your new EIN after the IRS validates the information. Validation takes place during the application process. Once done, you can download and print your confirmation letter with your EIN.
The online application option is by far the fastest way to get your EIN. Fax is the second quickest, and if you apply by mail, you may have to wait up to four weeks to receive your confirmation letter with EIN.
What Information is Required for an EIN?
When filing for an EIN, you will need to provide the IRS with detailed and specific information about yourself and your business.
- The legal name of your business. If you have registered the LLC under your name, then you will use that. If you have a trade name, “Doing Business As (DBA)” name, you must include that as well.
- Your business’s legal address, including state and country.
- The business owner’s name and tax ID (SSN). These are the person or persons who have the authority to control and manage the business, funds, and all assets. The IRS calls this the responsible party.
- The type of entity (corporation, LLC, sole proprietorship, partnership) and the date you started the business.
- Does your business involve gambling, and do you sell alcohol, tobacco, or firearms?
- You must provide the reason you are applying for an EIN. Some examples are acquiring an existing business, starting a new business, or hiring employees.
- The highest number of employees you expect to hire within the next 12 months. You must also designate when you will pay employment taxes (annually or quarterly) and the first date you paid wages to your staff.
- The number of members in your LLC.
Along with the information above, you must also identify your business type from the list of industries below. Use your best guess if nothing matches up perfectly.
- Accommodation & food service
- Construction
- Manufacturing
- Finance & Insurance
- Healthcare & social assistance
- Retail
- Real estate
- Rental & leasing
- Transportation & warehousing
- Wholesale-agent/broker or Wholesale-other
- Other
What to Do with Your New EIN
Once you have your business EIN, you can open up bank accounts and apply for credit with your EIN. Having a business-only bank account is a good idea. You can begin hiring employees immediately once you have your EIN; you don’t have to wait for anything. If you decide to operate your business under any DBAs, you will also need to use your EIN for that.
FAQs
An employer identification number is a unique identifier given to businesses in the U.S. This ID is a 9-digit number assigned by the IRS for tax purposes.
EIN stands for Employer Identification Number. It designates your company as a legitimate employer that can legally hire and pay employees. It is essentially your company ID with the IRS. TIN is an acronym for Taxpayer Identification Number, a broad term encompassing several types of tax IDs. The three most common types are Social Security Number (SSN), Employer Identification Number (EIN), and Individual Taxpayer Identification Number (ITIN). The bottom line is that an EIN is a type of TIN.
It depends on the route you take. If you apply online, you can get your EIN almost instantly, within a few minutes or hours. If you apply by fax, you could have it within four business days. If you take the mail route, you may have to wait up to four weeks.
No, EINs are free to obtain. The IRS does not charge you for an EIN. You will use it when you file your taxes or pay employees.
No, EINs never expire; you don’t have to renew them. They will stay active for as long as the business entity exists. If you convert your LLC to another business structure, you must apply for a new one. Even if your business ceases to exist, your unique EIN will never be reused or reissued by the government.
It's best to register your LLC before obtaining an EIN to ensure the EIN is correctly linked to your legal business entity. An EIN is necessary to hire employees, open business bank accounts, and file taxes. Under the new regulations, the IRS requires an officially registered business to issue an EIN.
According to new IRS rules, you must have a business entity before applying for an EIN. Each partnership, LLC (other than one taxed as a disregarded entity), and corporation must have its own EIN. Each business entity must have its own EIN if it operates more than one LLC or corporation.
Yes, you will need an EIN if you do business within the United States. If your business was formed outside the United States, you can apply for one over the phone.
No, you should complete the business development process before applying for the EIN. You will need specific information for your EIN application that you register with the Secretary of State. If you try to apply without first forming your LLC, your application will be rejected.
Yes. Typically, banks do require an EIN for a business to apply for credit or take out a loan. The good news is that the debt and credit will only appear on your business records, not your personal ones.
No. You may not reuse an EIN from another business or transfer one to a new sole proprietorship, partnership, corporation, or LLC. These IDs are unique identifiers used by the federal government, and only they can issue you a new one for your new business.
You get an EIN from the IRS. They have a helpful online tool where you can fill out a form, get verified, and receive your EIN almost instantly. If you use the fax or mail route to get your EIN, you must wait at least four business days and perhaps even a few weeks.
No. An EIN is a federal ID number, not a state ID number. Therefore, if you move to another state, you do not have to get a new EIN. You only need to get a new EIN if you change your business structure.
An LLC will need an EIN if it has any employees or if it will be required to file excise taxes. Most new single-member LLCs classified as disregarded entities must obtain an EIN. An LLC applies for an EIN by filing Form SS-4, Application for Employer Identification Number.
Getting an EIN is generally a good idea and offers you plenty of benefits. However, there may be a few drawbacks to consider before making your decision. An EIN can trigger additional tax obligations even if you aren’t a corporation. Even if you do obtain an EIN, the IRS may consider you a “disregarded entity” for tax purposes and default to pass-through taxation. If you need to change your EIN for any reason, it can cause complications with banks and vendors who will need to update their records.
Whether you get an EIN for your side hustle depends on how you run your operations and how you structure your company. If you are a multi-member LLC, corporation, or partnership, you will need an EIN. If you hire employees, have a retirement plan, or pay non-wage income to non-resident aliens, you will need an EIN.
In most cases, not having an EIN will not affect your tax liability. However, it does allow you to file taxes for your company under that number rather than your Social Security number.