| If you run a small business or engage in | | | | Form 941 and Form 940). |
| self-employment activities, you may need an Employer | | | | For EIN purposes, an employee of a sole proprietorship |
| Identification Number (EIN) issued by the IRS, whether | | | | must be someone other than the sole proprietor. The |
| or not you have employees. | | | | sole proprietor is never considered an employee of the |
| An EIN, also known as a Federal Tax Identification | | | | sole proprietorship because the payments you make |
| Number, is used to identify a business entity for tax | | | | to yourself out of business profit are not considered |
| purposes. | | | | wages. |
| How do you know whether you need an EIN? If you | | | | So if you are a sole proprietor and have no one else |
| answer "Yes" to any of the following questions, you | | | | performing work as an employee for your business, |
| must get one: | | | | then you have no employees and have no need for |
| 1. Do you have employees? | | | | an EIN. |
| 2. Do you operate your business as a corporation or a | | | | Question 2: Are you a corporation or a partnership? |
| partnership? | | | | If you ever form a corporation or a partnership, you |
| 3. Do you file any excise tax returns (such as alcohol, | | | | must get an EIN. But notice that Question 2 makes no |
| tobacco and firearms)? | | | | mention of the limited liability company (LLC), which has |
| 4. Do you have a retirement plan known as a Keogh? | | | | become an increasingly popular choice of entity type. |
| So it is possible for you to own a small business or be | | | | With a LLC, the rules get tricky, so pay attention here. |
| self-employed and not need an EIN. If you answered | | | | Keep in mind that the IRS did not create a new tax |
| all the above questions with a "No", then you are | | | | classification for the LLC when it was created by the |
| probably a sole proprietor or a self-employed person | | | | states. The IRS uses the tax entity classifications for |
| such as an independent contractor and since none of | | | | the LLC that it has always had for business taxpayers: |
| the conditions above apply, you need not concern | | | | sole proprietor, C corporation, S corporation, and |
| yourself with the EIN. If that's your situation, you simply | | | | partnership. For tax purposes, an LLC is always |
| use your Social Security Number as your business tax | | | | classified by the IRS as one of these types of entities. |
| identification number, and that's just fine with the IRS. | | | | If you are a single-member LLC (in LLC lingo, |
| Let's take a closer look at Questions 1 and 2, since it is | | | | "member" means owner) and choose to be treated |
| much more likely that you will answer those questions | | | | for tax purposes as a sole proprietorship, you do not |
| with a "Yes" than Questions 3 and 4. | | | | need to get an EIN (unless you answer "Yes" to |
| Question 1: Are you an employer? | | | | Questions 1, 3 or 4). But if you are a single-member |
| The most common reason for a sole proprietor to | | | | LLC and choose to be treated for tax purposes as a |
| need an EIN is because you have employees and are | | | | corporation, then you must get an EIN. And if you are |
| issuing paychecks, withholding payroll taxes (income | | | | a multi-member LLC, regardless of how you choose to |
| tax, social security tax, medicare tax), making payroll | | | | be treated for tax purposes (partnership or |
| tax payments, and filing payroll tax returns (such as | | | | corporation), you must get an EIN. |