Key takeaways
- Sole proprietors and single-member LLCs may not always need an EIN, but getting one is still often worthwhile because it can help keep your personal tax ID private.
- An EIN can also make it easier to grow your business, since you’ll need one to hire employees and may need one to open a business bank account or credit accounts.
- An EIN can help legitimize your business with clients, banks and the IRS, and it can be especially useful for non-U.S. entrepreneurs who do not have an SSN or ITIN.
Many sole proprietors and single-member LLCs aren’t required to have an employer identification number if they don’t have employees. Instead, they can generally use their Social Security number or individual taxpayer identification number when filing their business taxes.
However, even if you don’t strictly have to, getting an EIN is still a good idea — and it's free and fast to do on the IRS website.
Here’s when you need an EIN as a sole proprietor or single-member LLC and what benefits having this business tax ID offers.
When an EIN is required for sole props and LLCs
Sole proprietors and single-member LLCs must get an EIN for tax purposes if any of the following is true:
- You have employees.
- You choose to have your LLC taxed as a corporation.
- Your organization is tax exempt (even if you don't have employees).
- You bought or inherited your business.
- You have a Keogh plan or solo 401(k) retirement plan.
- You file for bankruptcy.
For further assistance determining if you need an EIN, check out this IRS questionnaire.
Benefits of getting an EIN for sole proprietors and LLCs
An EIN can help sole proprietors and LLC owners do the following:
1. Separate your business and personal finances
Having an EIN helps you separate your personal finances and personal life from your business. That’s important for a couple reasons:
- To protect yourself against identity theft. If you don’t have an EIN, you’ll have to provide your Social Security number or individual taxpayer identification number to clients or vendors you do business with. But if you have an EIN, you can keep your personal ID number private.
- For LLC owners, to limit your personal liability in the case of a lawsuit. Maintaining separation between your LLC’s finances and your personal assets is key to arguing that your LLC is its own distinct entity.
2. Set your business up for growth
You don’t necessarily need an EIN to open your first business checking account or start building business credit. But you’ll probably need one as your business grows. For instance:
- You’ll have to have an EIN to hire employees in the future. In fact, it’s the first thing you’ll need to set up a payroll system to pay your new employee. Plus, you’ll use your EIN when you issue employee tax forms.
- An EIN doesn’t help your business credit score by itself — but making on-time payments on your trade credit, business loans and business credit cards will. An EIN may be necessary to open some credit accounts.
- Certain banks allow sole proprietors and some single-member LLCs to open a business bank account without an EIN. But with an EIN, you’ll be able to choose just about any business bank.
3. Legitimize your operations
For certain types of business tax deductions, such as home office deductions, your chances of an IRS audit may decrease if you have an EIN. An EIN helps demonstrate to the IRS that you actually have a business.
Your clients may prefer to use your EIN for their own tax reasons. Using your business’s EIN instead of your personal SSN or ITIN provides additional evidence that you’re a contractor and not an employee.
Wholesale distributors may also require an EIN check before they’ll do business with a retailer.
4. Get more options as a non-U.S. entrepreneur
Having an EIN can be particularly helpful for starting a business if you don’t have a U.S. Social Security number or individual taxpayer identification number. You can use your EIN to complete tasks that otherwise might require personal tax ID numbers, like opening a business bank account.
Entrepreneurs who aren’t based in the U.S. must apply for an EIN over the phone.
How sole proprietors and single-member LLCs can get an EIN
It’s free to apply for an EIN. Doing so on the IRS website only takes a few minutes, and you’ll get your EIN immediately. Make sure to save your confirmation letter so you can look up your EIN in the future.
You can also apply by mail or fax. International applicants have to apply by phone.
Once you obtain your EIN from the IRS, it’s effective immediately and you can start using it right away. In most cases, your EIN will remain with you throughout the course of your business.
Frequently Asked Questions
What if I get an EIN and never use it?
You can write to the IRS to cancel your EIN if you apply for one but never use it. But this isn’t strictly necessary — keeping an EIN that you aren’t using shouldn't have any negative impacts on your finances.
Can I open a business bank account without an EIN?
You can open a business bank account without an EIN in some cases, usually if you’re a sole proprietor or single-member LLC. But many financial institutions require an EIN to open a business account.
Can I use my Social Security number instead of an EIN?
In some cases, you can use your Social Security number instead of an EIN, but using an EIN provides a level of protection against identity theft. Once you have an EIN, you’ll no longer have to provide your Social Security number to clients or vendors for tax purposes.
