Understanding tax IDs and business names
Not every business with a DBA requires an employee insurance number or EIN, but businesses with employees, multi-member LLCs, and corporations need one. To break this down further:
- EIN: A business's nine-digit Federal Tax ID. Many, but not all, companies require an EIN to make federal tax payments and file returns.
- DBA: Refers to "doing business as"—an unofficial business name. Businesses operate under a DBA to improve their branding and protect owners' privacy.
If a sole proprietor named Joseph Jones uses the DBA “Joe's Taco Truck," he can register his business with a Social Security number (SSN). But if Joseph expands into a multi-person business, he'll need an EIN to operate under his DBA. In general, you need an EIN for a DBA if:
- Your business has more than one employee (not including contractors)
- Your company incurs excise tax liabilities on certain goods or services
- You file articles of incorporation to restructure as a corporation
Situations where you don't need an EIN for a DBA:
- Your company operates as a single-person LLC
- Your business is a sole proprietorship
- You hire contractors but not employees
Read on to learn if you need an EIN and if you should get one for the official business name, the DBA, or both.
Does my business need a DBA?
Businesses aren't required to operate under a DBA. Consider a DBA the same way you think of a person's nickname. Someone named Joseph Jones may be called “Joey," or “JJ," but they will only have one Social Security card listing their legal name. A business can likewise operate under different names but use one EIN.
Related: Is it better to have an LLC or DBA?
What name should you use for taxes?
Most businesses need to apply for and receive a federal tax ID under a formal name. This formal or legal name depends on the company's structure:
- In the case of a sole proprietorship, it's the owner's full legal name.
- With a limited partnership, corporation, or limited liability company, it's the name listed on the formation documents filed with the state.
After a business registers with a tax ID, owners can choose to operate under one or more DBAs. Whether you pay taxes through an SSN or EIN, DBAs are your business nicknames and, therefore, you won't have a separate tax ID for a DBA.
Should I operate under a DBA?
DBAs let owners open bank accounts and credit cards under a preferred business name. They also improve visibility by helping businesses present as more professional. Finally, DBAs form a brand identity recognizable to vendors, customers, and competitors.
At the same time, DBAs don't offer financial or tax benefits in and of themselves. The monetary advantages of an EIN apply whether or not a business runs under a DBA.
DBA application process overview
Picking one or more names for your business is fairly simple. But once you've settled on a DBA, you need to formally register it. These steps include:
- Do preliminary research on your fictitious business name. Make sure no other businesses use the DBA in your area. If it's in use, pick a fallback name.
- Register the DBA within your state of operation. To avoid fines, file your DBA within 30 days of using the name. Bear in mind that registration fees may exceed $300.
- Look into county and city registration requirements. While most businesses only have to register with their state, some local governments need you to file a fictitious business name statement with their city or county clerk's office.
- While you don't have to register a DBA with the federal government, be sure to report any DBAs on related tax forms.
Related: Learn your state's DBA requirements.
Do I need an EIN for my business?
If your business is a corporation or partnership, whether under a DBA or not, the IRS requires you to have an EIN. While LLCs don't have their own tax classification, LLCs need an EIN depending on how they are taxed. For example, sole proprietors and single-member LLCs without employees or excise tax liability don't have to obtain an EIN.
The IRS website dictates that you will pay taxes through an EIN if your business:
- Pays its employees
- Functions as a partnership or corporation
- Files tax returns related to employment, tobacco, alcohol, excise, and firearms
- Withholds taxes on income paid to a nonresident
- Uses a tax-deferred pension plan, otherwise known as a Keogh Plan
- Works with trusts, estates, real estate investment partners, nonprofits, farmers' cooperatives, or plan administrators
You can also decide if you need an EIN based on your company structure. Single-person businesses that don't file payroll taxes can file with a Social Security number. If you hire employees, pay payroll taxes, and file as an S-Corp or C-corp, you need an EIN.
Taxes aside, many business owners find that they need an EIN to open a bank account, obtain a credit card, obtain business licenses, or pay state or local taxes. And others choose to get an EIN to avoid using their personal Social Security numbers for business matters.
EIN for DBA FAQ:
- Do I need a separate EIN for each DBA? No, you will use the same EIN for a business and all its DBAs.
- Can you get an EIN as a sole proprietor? You can, and many sole proprietors choose to do so for tax benefits and added privacy.
- Does a DBA need its own EIN? DBAs don't have a tax classification. The company operating under a DBA needs an EIN unless the owner is a sole proprietor or runs a single-person LLC.
- Do you have to register DBAs through the IRS? While you don't have to register DBAs with the IRS, owners must report DBAs on IRS tax forms.
- Can I Get an EIN Without a DBA? Yes, LLCs operating under the owner's name are eligible for an EIN.
- Do DBAs pay taxes? DBAs generate a registration fee with their home state but don't pay taxes. But the company or owners they represent do file with the IRS.
EIN application process overview
Getting an EIN for your business is a simple process:
- Open a free IRS online application or print out a copy of Form SS-4.
- On the form, provide information about your business, including how it is structured, the number of employees, and your principal business activities.
- Submit your online application on the IRS website. If you filled out Form SS-4, fax or mail it to the IRS
- Wait for the IRS to respond. Online applicants will receive their EIN immediately. If you apply by fax, you'll receive your EIN within four business days. If you apply by mail, it can take four weeks. International applicants can only apply for an EIN by telephone or by mail.
Once the IRS issues your EIN, open a business bank account and apply for any credit cards you may need. Getting this financial groundwork out of the way will let you focus on expanding your company. When tax season comes around, you should also meet with a tax adviser who can explain EIN deductibles and benefits.