The IRS utilizes a few different tax ID numbers beyond just the social security number. An important one for those in business is known as an employer identification number, or EIN. Any partnerships, corporations or S-corporations must have an EIN, but those who have a sole proprietorship or LLC have a choice in some circumstances. It is important to know when a sole proprietor, LLC or individual requires an EIN to ensure tax compliance.
There are a few key factors that determine whether a sole proprietor or LLC requires an EIN. The most important is whether you have employees. As soon as your company retains employees, you must have an EIN, even if you do not meet any of the other criteria. Other situations that require an EIN include:
- An LLC with multiple members
- A sole proprietor in bankruptcy
- An LLC choosing to be taxed as a corporation or S-corporation
- A business selling certain items, including alcohol and firearms
- Paying excise tax or employment tax
- Paying independent contractors more than $600 per year
Sole proprietors who change their business structure will need to get an EIN. Businesses that are sold or inherited often need to have an EIN as well. As stated before, partnerships and corporations, even if they work in the non-profit sphere, must have an EIN.
Although EINs are generally for businesses, there are some instances in which an individual might need to get one. An example is an individual that hires household workers. These might be considered employees, so you would need to have an EIN for tax purposes. Estates and trusts might also need to have an EIN rather than another type of tax ID in order to perform banking activities and pay taxes.
If you decide that you need an EIN, you can visit this page for an EIN application. If you are wondering how to get an EIN in Colorado or another state, then contact IRS-EIN-Tax-ID Filing Service to learn more about the process.