Do You Need an Employer Identification Number (EIN)?
If you’re starting a new business or expanding your current solopreneur work, it’s important to figure out the legal steps you need to take to make your company legitimate. An employer identification number (or EIN) is one such legal step.
But believe it or not, you don’t always need an EIN to legally run your business. Let’s take a closer look at what EINs are and who needs them.
What is an EIN?
Short for employer identification number, an EIN is a nine-digit number assigned to your business by the Internal Revenue Service (IRS). It’s unique to your business, and it can be used to identify your business on legal paperwork like credit card and loan applications, as well as on your taxes.
Who needs an EIN?
Businesses with employees
If you employ more than just yourself, you are required to deposit and report your employees’ income taxes. That means that you’ll need to file an employment tax form. The IRS uses your employment tax forms to determine who’s paying your employees and how taxes were withheld from each employee’s paycheck. The IRS will then use that information to determine whether you (the employer) deposited those withholdings with the IRS correctly.
Long story short: if you’ve got other people working for you, you’ll need an EIN.
Businesses that sell specific items
The government charges extra taxes on some items, so if you sell any of these items, the IRS will need you to file a special tax return (which requires an EIN):
In addition, you may need an EIN if you run a sports betting business or manufacture fishing or archery products.
Business owners who want a retirement plan
To get a 401(k) or Keogh retirement plan (that’s a special retirement plan specifically for self-employed people), you’ll need to have an employer identification number. Otherwise, your retirement plan provider won’t be able to verify that you’re employed.
Businesses involved with certain types of organizations
If your company does business with any of the following organization types, you’ll need an EIN:
- Real estate mortgage investment conduits
- Nonprofit organizations
- Farmers cooperatives
- Plan administrators
You may also need an EIN if you do business with a trust, though certain types of trusts are exempt from this rule.
Who doesn't need an EIN?
If you are running a solopreneur business, aren’t selling items with extra taxes levied against them, and do business directly with your consumers, then good news: you don’t need an EIN.
But . . . it never hurts to be prepared and get an EIN regardless. It doesn’t cost anything but time, and it’ll ensure you’ve got your ducks in a row if you ever stumble into a business situation where an EIN is necessary.
FAQ about employer identification numbers
Do I need an EIN if I have no employees?
Short answer: maybe.
If your business’s only employee is yourself, there’s a good chance you won’t need an EIN. However, even solopreneurs will need an EIN if they sell excise items (special, extra-taxable items like gasoline or tobacco, for instance) or they do business with trusts and other types of organizations. You’ll also need an EIN to get yourself a retirement savings plan.
Do I need an EIN for my LLC?
Not necessarily. You can register for an LLC as a solopreneur, so it’s totally possible to run an LLC without needing an employer identification number. But again, you’ll need to get that EIN if you plan to sell excise items, do business with certain types of organizations, or get yourself a retirement plan.
How do I file my taxes without an EIN?
If you don’t have an EIN, you can file self-employment taxes using the IRS’s 1040 or 1040-ES form. In addition, you may need to file a Schedule C or Schedule C-EZ form (depending on your business). These forms do not require employer identification numbers for solo businesses, as long as you don’t meet any of the other qualifications listed above.
Can I apply for a business credit card without an EIN?
Yes, you can apply for a business credit card without an EIN. Instead, you’ll use your personal social security number, and the issuing institution will run a check on your personal credit (rather than your business credit) to determine your eligibility.
What happens if I never use my EIN?
If you never use your EIN, then it’s no harm, no foul. An EIN doesn’t cost you anything, and anyone telling you otherwise is taking you for a ride. Your EIN will stay permanently assigned to your business no matter what, so you don’t have to worry about losing it. And it never hurts to have an EIN just in case you do need to use it at some point in the future.
If you’re a solopreneur running a business without employees, there’s a good chance you don’t need an employer identification number. However, we recommend checking out the IRS website for the most current information on EIN requirements.
We also want to point out that even if you think you don’t need an EIN, applying for an EIN costs you literally nothing but a few minutes of your time. It may be well worth the peace of mind, knowing you’ve legally covered your bases—just in case you wind up needing an EIN.
An EIN may not be necessary to apply for a business credit card, but what’s the alternative? Find out more in our guide to business credit cards versus personal credit cards.
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