When Does a Sole Proprietorship Require an EIN?

  • A federal employer identification number, or EIN, is a nine-digit number assigned by the IRS to businesses for the purpose of tax filing and reporting. The EIN is used by the IRS to identify the taxpayer. EINs are required for all business entities, including corporations, partnerships, and limited liability companies. However, most sole proprietors do not require an EIN and can instead use their Social Security numbers. Nonetheless, you should obtain an EIN.

  • When Do Sole Proprietors Need an EIN?

    If you're a sole proprietor, you'll need an EIN to:

    • Hire employees
    • Establish Solo 401(k) retirement plan
    • Purchase or inherit an existing business that you run as a sole proprietorship
    • Incorporate or form a partnership or limited liability company.
  • Apply for Sole Proprietor Tax ID (EIN) Number
  • Why Get an EIN if It Isn't Required?

    Even if the IRS says it's not necessary, there are many good reasons to obtain an EIN:

    • If you establish your company without an EIN or workers and later decide to recruit someone, you'll already have an EIN.
    • Instead of providing your Social Security number (SSN), you should apply for an EIN. This will keep your SSN more private and reduce the risk of identity theft.
    • To create a business banking account, most banks require an EIN.
    • Incorporate or form a partnership or limited liability company.• Another approach to keep your personal and work finances separate is to open a company bank account.
    • The EIN is used by banking and credit agencies to track your business's credit in the same way that a Social Security number is used to track your personal credit.
    • Although an EIN is not required for all business loans, many lenders prefer a firm with a business bank account that has proven its business credit.
  • Apply for Sole Proprietor Tax ID (EIN) Number