Is an EIN Required for a Sole Proprietor? (2024)

By Stephen Fishman, J.D. USC Gould School of Law

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A federal "employer identification number," or EIN, is a nine-digit number the IRS assigns to businesses for tax filing and reporting purposes. The IRS uses the EIN to identify the taxpayer.

Business entities—corporations, partnerships, and limited liability companies—must use EINs. But most sole proprietors don't need to get an EIN and use their Social Security numbers instead. Even so, you might want to obtain an EIN anyway.

When Does a Sole Proprietor Need an EIN?

If you're a sole proprietor, you must have an EIN if you:

• hire employees
• have a Keogh or Solo 401(k) retirement plan,
• buy or inherit an existing business that you operate as a sole proprietorship
• incorporate or form a partnership or limited liability company, or
• file for bankruptcy.

Also, some banks require you to have an EIN before they'll set up a bank account for your business.

What Business Does Not Need an EIN?

If you're a sole proprietor, you don't have to get an EIN if you have no employees and started your own business, instead of buying an existing business.

So long as you don't switch to another business form such as a limited liability company or corporation, you can use your Social Security number for tax purposes. Many sole proprietors use their Social Security numbers for decades.

Reasons To Get an EIN Even If It's Not Required

You can get an EIN even if it isn't required. Two good reasons to use an EIN instead of your Social Security number are to avoid identity theft and to help establish independent contractor status.

Using an EIN to Avoid Identity Theft

The theft of taxpayers' identities is a rampant problem. Identity thieves steal taxpayers' Social Security numbers and use them to file fraudulent tax returns and get tax refunds. For this reason, it's wise to keep your personal Social Security number as private as possible.

If you perform personal services as an independent contractor, you must provide an EIN or Social Security number to your clients, or the client will be required to withhold 24% of your payments. Obtaining an EIN allows you to avoid having to provide your Social Security number to clients and other members of the public.

Using an EIN to Help Establish Independent Contractor Status

Using an EIN on your tax returns and payments also helps to show that you're an independent businessperson. In other words, you're an independent contractor and not an employee. This status can make you more attractive to prospective clients.

How to Get an EIN

Getting an EIN is easy and free. The fastest and easiest way is to apply directly at the IRS website. The IRS has an online EIN Assistant tool you can use.

If you aren't comfortable sending information via the internet, you can download IRS Form SS-4, Application for Employer Identification Number and send it by postal mail. Or you can get your EIN by calling the IRS at 800-829-4933 from 7:00 a.m. to 10:00 p.m. local time (Pacific time for Alaska and Hawaii).