What Is an EIN and Do You Actually Need One?

Yes. You need one. Let’s talk about what it is.

EIN stands for Employer Identification Number. It’s issued by the IRS, it’s free, and it functions essentially like a Social Secur

ity number for your business. It’s how the federal government identifies your business entity for tax purposes.

You use it to open a business bank account. You put it on invoices and contracts. You use it when you file business taxes. If you ever hire employees or work with contractors you pay more than $600 in a year, you’ll need it for 1099s. It shows up in a lot of places.

Do you need one if you’re a sole proprietor with no employees? Technically, for some situations, no — you can use your Social Security number instead. But I’d strongly encourage you not to.

Here’s why: every time you use your Social Security number in a business context, you’re creating a connection between your personal identity and your business finances. That’s an identity theft risk. It also just muddies the waters between you and your business, which is exactly the kind of thing that creates headaches later.

Get the EIN. It’s free. It takes about ten minutes on the IRS website. You fill out the SS-4 form online, confirm your

information, and your EIN is issued immediately. You’ll get a confirmation letter to save for your records.

A few things to know:

You apply for it online at IRS.gov.

Not through a third-party site that charges you $50 for something the IRS gives you for free. I say this because those sites exist and they’re very good at showing up first in search results.

You get one EIN per business entity.

If you form an LLC, that LLC gets its own EIN. If you’re a sole proprietor, your EIN is tied to your Social Security number and your personal identity. These are different things with different implications — which is another reason forming an LLC first makes sense.

Your EIN doesn’t expire and doesn’t change.

Once you have it, it’s yours for the life of that business entity.

You’ll need it before you can open a business bank account.

Most banks require it. Get the EIN first, then go to the bank.

This is the kind of thing that sounds intimidating until you actually do it, and then you spend ten minutes on the IRS website and think: that’s it? That’s it.

Setting up a business has a learning curve, but most of the individual steps are genuinely not complicated. They’re just unfamiliar. That’s a different problem — and it’s one I can actually help with. Business setup is a service I offer at Kimberly Hill Business Studio, start to finish. You shouldn’t have to Google your way through the foundation of your business. That’s what I’m here for.

— Kimberly