Categories: Business Basics

Do I Need an Employer Identification Number?

An Employer Identification Number, also called an EIN or a Federal Tax Identification Number , is a unique set of digits assigned to a business by the IRS. With it, tax agencies can easily track the financial activity of your company, and make sure that you pay your taxes. But, if you run a sole-proprietorship, the IRS can already do that using your personal social security number. So in what cases do you need an Employer Identification Number?

When you hire someone

The only time you can really get away with using your social security number is when your business is considered a sole-proprietorship, and you’re the only employee. The IRS figures, in cases like that, the company’s profit flows directly to you, and you pay your taxes from that. But that changes the minute you bring anyone on to help run the company, and that includes a business partner. Once you start hiring, your company must have an EIN.

When you form an LLC or Incorporate

Incorporating or forming an LLC separates you and the business. Since the company is its own, legal entity, and you are its employee, it needs an EIN so that the IRS can track the business and make sure it is collecting payroll tax and, in the cases of certain corporations, its own tax. It is also important to note that in these cases you need an EIN, even if you are the only person working for the company.

When you don’t feel like giving out your social security number

Your social security number is tied inextricably to your identity. And, if the wrong person gets ahold of it, they can wreak havoc on your life. Identity theft is a serious problem – one you want to avoid at all costs. It makes sense, then, to get an EIN for your business so you don’t have to give out your social security number every time you need to identify your business.

Chances are good that, at some point, you will hire someone and wind up needing an EIN. Getting one sooner, rather than later, will make running your business much less complicated. The IRS actually allows you to file for an EIN, for free, online. And, if you aren’t comfortable with that, you can hire an outside service to help you out. Either way, it’s a good idea to get an EIN early on in your company’s life since having one helps protect your personal identity, and will streamline any interaction you have to have with the IRS.

Deborah Sweeney

Deborah Sweeney is an advocate for protecting personal and business assets for business owners and entrepreneurs. With extensive experience in the field of corporate and intellectual property law, Deborah provides insightful commentary on the benefits of incorporation and trademark registration.

Education: Deborah received her Juris Doctor and Master of Business Administration degrees from Pepperdine University, and has served as an adjunct professor at the University of West Los Angeles and San Fernando School of Law in corporate and intellectual property law.

Experience: After becoming a partner at LA-based law firm, Michel & Robinson, she became an in-house attorney for MyCorporation, formerly a division in Intuit. She took the company private in 2009 and after 10 years of entrepreneurship sold the company to Deluxe Corporation. Deborah is also well-recognized for her written work online as a contributing writer with some of the top business and entrepreneurial blogging sites including Forbes, Business Insider, SCORE, and Fox Business, among others.

Fun facts/Other pursuits: Originally from Southern California, Deborah enjoys spending time with her husband and two sons, Benjamin and Christopher, and practicing Pilates. Deborah believes in the importance of family and credits the entrepreneurial business model for giving her the flexibility to enjoy both a career and motherhood. Deborah, and MyCorporation, have previously been honored by the San Fernando Valley Business Journal’s List of the Valley’s Largest Women-Owned Businesses in 2012. MyCorporation received the Stevie Award for Best Women-Owned Business in 2011.