he IRS uses Employer Identification Numbers, or EINs, to identify business entities. Depending on your business structure, you may not need an EIN, although most businesses are required to have an EIN for tax purposes.
Does an LLC need an EIN? Most LLCs need an EIN, but some single-member LLCs (limited liability companies) that meet specific requirements do not need one. However, even if an EIN is not required due to the type of business you own, obtaining an EIN for your LLC can still be beneficial.
What is an EIN?
An Employer Identification Number (EIN) is a nine-digit number used by the Internal Revenue Service (IRS) to identify a business entity. It's similar to a social security number (SSN) for businesses. Business owners must complete an SS-4 Form to obtain an EIN, also known as a Federal Tax Identification Numbers.
Generally, most business entities are required to have an EIN, although some exceptions exist. Businesses and entities that typically use an EIN include:
- Government agencies
- Non-profit associations
- Sole proprietors
- Estates of descendants
Do I need an EIN for my LLC?
The IRS requires most LLCs to have an EIN. All multi-member LLCs must have an EIN, regardless of how they are taxed (either as a partnership or a corporation). The exception to this requirement are single-member LLCs that meet the criteria outlined below.
Do single-member LLCs need an EIN?
Single-member LLCs may need an EIN depending on how they elect to be taxed. For example, single-member LLCs taxed as a corporation are treated as disregarded entities by the IRS. With disregarded entities, the IRS ignores the business’s LLC status and treats any business income as the owner's income for federal income tax return purposes.
Some single-member LLCs treated as disregarded entities may still need an EIN. According to the IRS, you will still need an EIN if you answer ‘yes’ to any of the following questions:
- Do you have employees?
- Do you operate your business as a corporation or a partnership?
- Do you file any of the following tax returns: Employment, Excise, or Alcohol, Tabacco, and Firearms?
- Do you withhold taxes on income other than wages paid to a non-resident alien?
- Do you have a Keogh plan?
- Are you involved with any of the following types of organizations?
- Trusts, except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns
- Real estate mortgage investment conduits
- Non-profit organizations
- Farmers' cooperatives
- Plan administrators
The Benefits of an EIN Number
Regardless of your business structure, there are several advantages to having an EIN. From added credibility and security for your business to easier tax filing and money management, you and your business can benefit from obtaining an EIN.
Open a business bank account
Many banks require you to have an EIN to open a business checking account. Novo allows sole proprietorships and single-member LLCs to apply without an EIN, but an EIN is required for all other business types to open a business checking account.
File business taxes
Having an EIN is crucial when filing taxes as a small business. Many sole proprietors can still file business taxes under their personal income tax returns. But there are tax and other benefits to keeping your business finances separate from your personal accounts.
Establish business credit
When you apply for credit using an EIN, the account will show up on your business credit report. By applying using your EIN, you can help your small business establish a more extended credit history, which will lead to more favorable rates and terms on future business financing.
Qualify for a business loan more easily
With an EIN, you can speed up the process of applying for a business loan. Most lenders don’t explicitly require one as long you have any necessary business permits or licenses and are legally qualified to do business. However, many small business lenders, including SBA lenders, will check your business credit when determining eligibility for a loan. Having an EIN can help you establish and build business credit faster, making it easier to qualify for a business loan.
Obtain business licenses or local permits
Depending on your business type and the state and county in which you run it, licenses or local permits may be required. Typically, you will also need to provide an EIN number when filing for them.
Prevent identity theft
Having an EIN helps to separate your business from your personal accounts. Using an EIN keeps your social security number more secure, lowering the chances of it being stolen.
Protect your assets
Keeping your personal information separate not only protects you from identity theft but also protects your personal assets. Your personal assets are protected if your business is sued or suffers losses.
Give your business more credibility
An EIN can help your small business convey a more professional image. Having an EIN shows you are serious about what you do. Instead of vendors and clients seeing your small business as a side hustle or hobby, they will view it as a legitimate business venture.
How to obtain an EIN for my LLC
Obtaining an EIN for your LLC is relatively easy and free. You must fill out Form SS-4, which can be done online, by fax, or by mail. In general, applying for an EIN online enables you to receive your EIN number the fastest.
Apply for an EIN with Novo
While it’s possible to apply for an EIN via the IRS website, Novo also provides an efficient, free, and secure EIN application service. Simply fill out the online application, provide a signature, and click Submit. We take care of the rest!
During the application process, you'll need to provide personal and business information, including:
- Business entity type
- Full name
- Social Security Number
- Business mailing address
- Business phone number
- The date you started the company (or when it was acquired)
- Reason for applying for an EIN
- EIN/Tax ID Recipient information
Depending on your business structure, you may need an EIN. Even if it's not necessary, having an EIN can help you protect your personal information and assets, and it can help you grow your small business. If you're a small business owner or entrepreneur, consider applying for a free EIN today.
This page is for informational purposes only and is not intended to be relied upon as legal, financial, or accounting advice. Please consult your own professional if you have any questions.