What is a Tax ID # (EIN or TIN)?
A taxpayer identification number (also commonly referred to as a tax ID, EIN or TIN number) is a unique identification number issued by the IRS for business owners or independent contractors to use. Think of a tax ID/EIN number as a social security number for your business.
The IRS does not require that all businesses register an EIN however it is considered a good idea for many to have a separate number for their business.
Am I required to register an EIN?
If you are a partnership, corporation or LLC, yes you will need a Tax ID #.
If you are a sole proprietor, using your social security number for personal and business purposes is acceptable. For a handful of sole proprietors who operate in specific fields (like the automotive industry for example) or who have hired employees, a tax ID/EIN will be requested and/or required.
Why would I register an EIN as a Sole Proprietor if I don’t have to?
- Identity security
- Ability to hire and payroll employees
- Certain industries require an EIN for specific contracts and applications
Having an EIN provides a level of personal protection by removing the need to give out your personal social security number on countless documents. As a business owner there are frequent forms and applications you will need to complete for various vendor contracts. Independent contractors who have several clients are constantly providing their social security number on 1099 forms. Instead of frequently sharing your social security number you can provide a tax payer identification number (or EIN) in place of it. Additionally, you can provide your tax ID for bank accounts, credit history and taxes. Even if you trust your clients, vendors and bankers completely, there is always the possibility that the files with your personal information might become compromised or stolen.