Does a Sole Proprietor Need an Employment Identification Number?

An employment identification number ("EIN"), also referred to as a "taxpayer identification number," is a unique nine-digit number assigned by the Internal Revenue Service ("IRS") for the purposes of tax reporting. It's similar to a Social Security number (SSN), except that it's for businesses.

When Sole Proprietors Need an EIN

Corporations and partnerships are required to have an EIN. However, if you're a sole proprietor (with no employees), the IRS doesn't require one. Instead, you can use your SSN and report your income and expenses on a Schedule C tax form. However, many sole proprietors still elect to use an EIN because it reduces the chances of identity theft and banks often require one to open a business account.

Even if you're a sole proprietor, you'll need an EIN if you:

• have one or more employees (not if you only use independent contractors)
• use a Keogh retirement plan, or
• file pension or excise tax returns.

An EIN is also required if you change the structure of your business (for example, you change from a partnership or corporation to a sole proprietorship).

In addition, an EIN is required for certain organizations, such as trusts, estates, IRA's, real estate mortgage investment conduits, farmer's cooperatives, plan administrators, and non-profit organizations.

How to Apply for an EIN

The IRS provides a free service to apply for an EIN. The service allows you to submit an IRS Form SS-4 by mail, phone, fax, or online. You can obtain a copy of the IRS form and information on filing at the IRS website.

Online. Filling out an application online is the easiest and quickest way to get an EIN. You can apply online by answering a few questions about your business.

Phone. International applicants can apply for an EIN by phone. You can receive an EIN almost immediately by calling the Business & Specialty Tax line at (267) 941-1099.

Fax. You can also fax your SS-4 form to (855) 641-6935. If you don't have a legal residence or principal place of business in any state, you'll need to fax your form to either (855) 215-1627 (within the U.S.) or (304) 707-9471 (outside the U.S.).

Mail. This method is the slowest way to receive your EIN. The process by mail usually takes four weeks.

If your principal business, office or agency, or legal residence is located in the District of Columbia or any of the fifty states, you must mail a SS-4 Form to:

Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999

If you have no legal residence, principal place of business, or principal office or agency in the District of Columbia or any state, you must mail a SS-4 Form to:

Internal Revenue Service
Attn: EIN International Operation
Cincinnati, OH 45999

You can find out more about the application process by reading our article on how to get an EIN.