Does A Sole Proprietor Need An EIN? Unraveling the Facts

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An EIN, or Employer Identification Number, is a nine-digit number assigned by the IRS for tax filing purposes. So, does a sole proprietor need an EIN? It’s generally not required because you can use your Social Security Number instead.

But even though it’s not required, there are some times when an EIN will come in handy for sole proprietors.

Key Points:
Does a sole proprietor need an EIN? No, in most cases, sole proprietors are not required to get an EIN.
Can a sole proprietor have an EIN? Yes, sole proprietors can apply for an EIN through the IRS.
Does a sole proprietor need a tax ID number? Sole proprietors need a tax ID number. But they can use either an EIN or their Social Security Number. See sole proprietorship taxes for more details.

When Does a Sole Proprietor Need an EIN?

Most sole proprietors can use their Social Security Number for tax filing purposes. But sometimes, you’ll need an EIN to perform certain business actions. As a sole proprietor, you’ll need an EIN for any of the following actions.

Hire Employees

The most obvious reason for an Employer Identification Number (EIN) is for businesses that want to hire employees. As a sole proprietorship seeking to hire employees, you’ll need an EIN.

Open a Business Bank Account

When opening a business bank account, the financial institution will require an EIN to finalize the application. Many business owners want to capitalize on the benefits of a business account. But you’ll need to apply for an EIN first.

Have a Keogh or Solo 401(k) Retirement Plan

If you want your business to contribute to a Keogh or Solo 401(k) plan, then you’ll need an EIN to facilitate that transaction. Specifically, you’ll use your EIN to report the contributions to the IRS.

Buy an Existing Business

If you want to purchase an existing business through your sole proprietorship taxes, you’ll need an EIN. The same holds true if you stand to inherit an existing business.

Incorporate

If you want to incorporate your business, you’ll need to get an EIN. When you incorporate, you create a separate legal entity for your business. And this separate entity needs its own EIN.

Form a Partnership

When creating a partnership, you need to apply for an EIN because you cannot put both of your Social Security Numbers on tax forms. Instead, you’ll use the EIN to delineate business operations.

Form an LLC

When you form an LLC, you will start by filing the Articles of Organization with your state’s Secretary of State office. When you form an LLC, the business becomes a separate legal entity. And with that, the IRS needs to issue your LLC an EIN.

File for Bankruptcy

When filing for bankruptcy as a business, an EIN helps creditors determine if there is any separation between your business and personal assets. Your personal assets should be protected if you have formed an LLC. If you are a sole proprietor, creditors may have the right to seize your personal assets.

Doing Government Work

If you want to land government contracts, you will almost certainly need an EIN.

Why Get an EIN if It’s Not Required?

Based on the reasons above, you can determine whether or not you are required to get an EIN. But just because it’s not required doesn’t mean you shouldn’t get an EIN. Many sole proprietors choose to get an EIN to tap into the benefits that come with it.

The Benefits of Getting an EIN as a Sole Proprietor

Here’s a close look at the benefits of getting an EIN as a sole proprietor.

Prepare for growth: If you already have an EIN, you can be ready to hire employees quickly when the need arises.
Keep your Social Security Number more private: When you have an EIN, you can use it for all of your business needs. With that, your SSN will not be floating around.
Separate your business and personal expenses: Most banks require an EIN to open a business bank account. If you want to keep your finances separate, then an EIN is the first step.
Track your business credit: With an EIN, you can start building credit for your business. You can keep the two entities separate instead of tying your personal credit into your business decisions.
Improved access to business loans: When applying for a business loan, an EIN can expedite the process. Most business lenders prefer to work with owners that have an EIN.
Increase your credibility: As a freelancer or independent contractor, you can increase your credibility with an EIN. That’s because your clients will notice that you’ve taken steps to protect your Social Security Number. Plus, it helps them avoid the gray area of hiring an employee.
Build trust with vendors: When you have an EIN, a vendor knows that they are dealing with a professional business owner. That can lead to increased trust.
Available to international entrepreneurs: If you don’t have a Social Security Number, you can still apply for an EIN through the IRS Form SS-4. That can open the door to more opportunities.

How to Apply for an EIN

When you are ready to apply for an EIN, there are several paths forward. But before you move to the application, start by gathering the following information:

Business type: Are you a sole proprietorship, LLC, or corporation? See: sole proprietorship vs llc.
Business location: Where is your business located?
Business owners: What are the names, dates of birth, and other relevant information of all the business owners.
Responsible party: Who should the IRS contact if questions arise about the EIN? You’ll need to provide the Social Security Number or tax identification number of the responsible party.

Gathering this information ahead of time will streamline your application process. Below, you’ll find the different ways to apply for your EIN.

Online

The simplest way to apply for your EIN is online on the Internal Revenue Service website. You’ll need to complete the entire application in one sitting. Note: if you leave the application for more than 15 minutes, the session will time out.

Phone

If you want to receive your EIN immediately, then you can call the Business & Specialty Tax Line at (800) 829-4933. As an international applicant, you’ll call (267) 941-1099. You can call the service Monday through Friday from 7 AM to 7 PM.

Fax

If you prefer to fax your SS-4 form to receive an EIN, you can send it to (859) 669-5760. Or as an international applicant, you can send it to (267) 941-1040.

Mail

Last but not least, you can choose to mail your SS-4 form to the IRS.

As a U.S. Citizen, you can mail the form to:

Internal Revenue Service

Attn: Internal Revenue Service

Cincinnati, OH 45999

If you aren’t a legal resident of the U.S., then mail the form to: