The Internal Revenue Service uses an employer identification number (EIN) to identify business entities, and while most limited liability companies (LLCs) will need an EIN, there are some exceptions.
Multimember LLCs are required to use an EIN to file taxes, but sole proprietors and single-member LLCs are not and can use their Social Security numbers instead.
Still, many business owners prefer to use an EIN, even if they're not required. EINs offer an array of tax options and financial advantages.
Can you run an LLC without an EIN?
All multimember LLCs require an EIN, regardless of whether they pay taxes as a partnership or a corporation.
But unless a single-member LLC elects to file taxes as a corporation, the IRS treats it as a disregarded entity. This means that the LLC's income is treated as the owner's income for federal income tax purposes. So if you are the sole proprietor of an LLC, you can pay income taxes on your business through your SSN.
Can disregarded entities use EINs?
A disregarded entity does not have to use an EIN for any reporting or filings required for income tax purposes. It can use either the owner's SSN or EIN. This is the case even if you have obtained an EIN for your LLC. A disregarded entity is not required to obtain an EIN unless it has:
- One or more employees: Any behavior that incurs payroll taxes, such as hiring employees or business partners, necessitates an EIN.
- Excise tax liabilities: The IRS imposes excise taxes on imported chemicals, coal mined in the U.S., kerosene in aviation, expired tax fuel credits, heavy highway vehicle use, and more.
If you make any changes that result in your LLC not being classified as a disregarded entity, you will need to apply for an EIN. For example, you will need an EIN if you add a member to your LLC and it's no longer a single-member organization.
Which LLC tax ID number should I use?
Assuming your LLC doesn't have employees or excise tax liability, you're free to file taxes with an SSN or EIN. Before committing to one tax ID or the other, consider the pros and cons of each option.
Benefits of filing taxes with an SSN
While most businesses file with an EIN, there are a few advantages to paying taxes through an SSN:
- You can file your personal and business-related taxes together
- You're eligible for pass-through taxation, where business profits go straight to you
- All LLC assets receive protection from creditors who may try to claim your business' property
Benefits of filing taxes with an EIN
EINs are popular thanks to the wide range of benefits they offer:
- Paying taxes through an EIN provides more privacy to business owners
- EINs are eligible for tax deductions you can't receive through an SSN
- You can hire employees and structure your business with more flexibility
Should I get an EIN for my LLC?
Even if you're not required to obtain an EIN, your LLC will benefit from one. An EIN will promote the long-term growth of your business. For example, most banks request an EIN if you want to open a bank account or credit card under your LLC name. It also protects your privacy by keeping your SSN out of business matters and allows you to hire employees.
Not all LLCs need an EIN immediately. Some owners run on a small scale tied to their SSN while forming their business plan. This saves time and paperwork if they haven't settled on long-term goals. But once you're ready for these benefits, you can apply for an EIN even though the IRS does not require you to have one.
Frequently asked questions (FAQ)
- Are an LLC and an EIN the same? No, LLC and EIN aren't interchangeable. LLC refers to a type of company, and EINs are tax IDs that apply to LLCs and other business models.
- Do you need an EIN for an LLC? Multi-person LLCs with employees require an EIN. You don't need one if you run a single-person LLC with no excise tax liability.
- Should I get an EIN as the sole proprietor of my LLC? Getting an EIN comes with a wide array of benefits. EINs grant privacy, access to tax deductions, and more options for opening a business bank account.
- How do I set up an LLC? You can start an LLC by filing the required paperwork with the state your business operates in. Once you've provided the necessary business information, the state will send you a certificate.
- Does an EIN cost money? Applying for an EIN is free through the IRS.
How does an LLC obtain an EIN?
Applying for an EIN is an easy process with no fees involved. LLCs have two application methods:
- Online Application: You can submit an online application for an EIN directly through the IRS website. This is the quickest way to obtain an EIN, as it will be issued to you immediately after the IRS validates your information.
- Send form SS-4: You can print out a copy of Form SS-4 (PDF) and send it directly to the IRS. You can send it to the appropriate fax number or mail in the completed form. For applicants by fax, your new EIN will be faxed to you within four business days. Once a determination has been made that your LLC needs an EIN, mail-in applicants will receive an ID.
Next steps after getting an EIN
Once the IRS sends your EIN, save the documents it's listed on. From here, plan on incorporating it into your future business plans.
- If you intend to file taxes with your EIN, meet with an adviser who can point out the best savings and deductibles.
- Use the EIN to open bank accounts under your business name.
- Decide whether you want to hire employees in the near future.
- Include your EIN when registering for any DBAs.
Whether you're required to get an EIN or need one for a non-IRS-related reason, applying for an EIN for your LLC is easy and presents financial advantages.