If you’re starting your own limited liability company (LLC), there are several key steps to follow after you form your single-member LLC with the state. One is obtaining an employer identification number (EIN), which is crucial information for taxes and financing.
Most businesses require one, and this handy guide explains what an EIN is for and whether you’ll need one for your single-member LLC.
What Is an EIN?
The Internal Revenue Service (IRS) uses your EIN to identify your company, much the way a Social Security number is used to identify individuals. In addition, an EIN is used for tax filing purposes and to track your business credit and is often needed to open a business bank account.
Who Can Get an EIN?
Any business, regardless of entity type, can get an EIN, even a sole proprietorship. However, a sole proprietorship does not have to obtain an EIN if the business has no employees. The sole proprietor can use their Social Security number for tax filing purposes.
Do I Have to Get an EIN for my Single Member LLC?
If you hire employees, you’ll need to have an EIN. The IRS offers a test to determine if you need an EIN:
- Do you have employees?
- Do you operate your business as a corporation or a partnership?
- Do you file any of these tax returns: Employment, Excise, or Alcohol, Tobacco, and Firearms?
- Do you withhold taxes on income, other than wages, paid to a non-resident alien?
Do you have a Keogh plan?
- Are you involved with any of the following types of organizations?
- Trusts, except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns
- Real estate mortgage investment conduits
- Non-profit organizations
- Farmers’ cooperatives
- Plan administrators
If you answer yes to any of those questions, you need an EIN. Generally, an LLC with only one member and no employees does not need an EIN.
Benefits of an EIN
There are several reasons to get an EIN, even if you’re not required to have one. First of all, it adds a degree of separation between your business and personal finances. Besides, it’s usually needed to open a business bank account.
Also, it will allow you to establish business credit, which can help you access future financing. Finally, if you’re not hiring employees now but may do so, you’ll already have your EIN and be ready to go.
What Do I Need to Get an EIN?
According to the IRS:
All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner or trustor. This individual or entity, which the IRS will call the ‘responsible party,’ controls, manages, or directs the applicant entity and the disposition of its funds and assets. Unless the applicant is a government entity, the responsible party must be an individual (i.e., a natural person), not an entity.
When you fill out the application, you’ll need the following:
- DBA name, if you have one
- Name, title, and Social Security number of managing member or owner
- Business address
- State in which your business is registered
- Reason for applying
- Main business activity
- Products/services offered
- Closing month of your accounting year
- Contact phone number and email
How to Apply for an EIN
The application is Form SS-4, and you can submit it via the IRS website. You can print the form, fax it, or mail it. If you apply online, your EIN will be issued immediately.
In many situations, obtaining an EIN for your business is a necessity. For example, if you run a single-member LLC with no employees, you don’t need to get one, but you might want to do so anyway to be ready for possible expansion.