An employee identification number (EIN), also sometimes called a federal tax ID number, is a number issued by the IRS to a business entity for tax filing purposes. Individuals use their Social Security numbers for personal tax purposes, but most businesses must use a federal tax identification number. If you have a limited liability company, you need to understand the rules about EIN for LLC to determine if you need to obtain an LLC EIN number.
Single Member LLCs
If your LLC has only one owner, or member, you may not have to get an LLC EIN. If you run your LLC from your home and it’s just you, you don’t need an EIN as long as you choose to report your business to the IRS as a “disregarded entity” (essentially a sole proprietorship) and in fact this is the default option for a solely owned business because the IRS does not recognize LLCs as business entities. In this situation, you can use your Social Security number for taxes and do not need an EIN. You report the profits and losses from your business on your personal income tax statement.
If you have any employees however, you must obtain an EIN LLC. If you have no employees now, but add them, you must apply for EIN at that time. You have the option of reporting your single-member LLC as a corporation (you can choose an S corp or a C corp) to IRS and if you choose this option you will need to obtain an EIN. If you add an owner or member to your LLC, you must obtain an EIN at that time. Another situation in which you must have an EIN, even if you are a single member, is if you are paying taxes to the Bureau of Alcohol, Tobacco, Firearms, and Explosives or if you participate in a Keough retirement plan.
Other Reasons for EINs for Single Members
You might also want to get an employer identification number for security reasons. Always using your Social Security number opens you up to identity theft while an EIN is not linked to any of your bank accounts or credit cards. A federal tax ID also allows you to build up your business’s credit rating. If you want to open a bank account in the name of your LLC, the bank will probably require a tax number for LLC. As your business grows, you may find that companies you do business with may require an EIN to pay you. Your state may also require an EIN for you to file taxes for your LLC. If you file for bankruptcy of your LLC you will have to obtain an EIN.
When considering whether an LLC needs an EIN, it is important to note that all other LLCs that are not single member entities have to have EIN. This includes partnerships or corporations. A single-member LLC is the only exception to the rule for EINs for businesses.
Apply for an EIN
Obtaining an EIN is not complicated. You can apply for a tax ID number for LLC online, by phone, fax, or mail. If you apply online, your EIN application is the online form. To mail or fax, complete form SS-4 from the IRS.
An EIN may be a necessary part of doing business for your LLC or it might just be a useful tool to help your business grow.
LegalZoom will help you get an EIN for you business. We can help you start your business as well, get started by using our online questionnaire.