When Do You Need an Employer Identification Number?

Your social security number is generally used to identify you for individual federal and state income tax purposes, among many other uses. If you have a business that you operate as a sole proprietorship with no employees, you can generally file your tax returns using your social security number. But when you hire employees, you will need an employer identification number. This number also serves as a taxpayer identification number, which you need whenever you constitute an entity that is separate from you as an individual for tax or other purposes.

According to the IRS, you need an employer identification number (EIN) if you hire employees or operate your business as a partnership or corporation. You also need an EIN if you have to file tax returns for excise tax or tax on alcohol, tobacco and firearms, or if you withhold taxes on income you pay to a partner or investor who is not a citizen or resident of the U.S. If you set up a pension, profit-sharing, or retirement plan in your business you need an EIN. And trusts, estates, real estate mortgage investment conduits, nonprofit organizations, farmers' cooperatives, and plan administrators need an EIN. You also need an EIN if you file for Chapter 7 or Chapter 11 bankruptcy.

If you are a sole proprietor and operate your business as a limited liability company (LLC) with you as the only owner, you do not need a separate EIN for the LLC unless you have to file employment or excise tax returns.

If you already have an EIN for your business, you generally do not need a new EIN if you change the name of your business, change locations, or add locations, such as stores, plants, or branches. But if you change the way your business entity is structured, you need a new EIN. For example, if your business is a partnership and you decide to incorporate, you need a new EIN. Also, if you terminate the partnership and start a new partnership, you need a new EIN.

Similarly, if you are managing trusts or estates, you would generally need a new EIN if there is a change in structure. For example, you would need a new EIN if a trust is created with funds from an estate, or if in representing an estate you operate a business after the owner's death. And you would need a new EIN if a trust changes to an estate, a living trust changes to a testamentary trust, or a revocable trust changes to an irrevocable trust.

To apply for an employer identification number, you can file Form SS-4. If you mail in the application, the processing time is four weeks, according to the IRS. You could also fax Form SS-4, or call the toll-free Business and Specialty Tax Line at 800-829-4933. Or you can apply for an EIN online.

Sources:

Employer ID Numbers (EINs), IRS

Form SS-4, Application for Employer Identification Number, IRS

How to Apply for an EIN, IRS