A limited liability company (LLC) is a business entity that offers significant benefits and protections to business owners. Whether you’re starting a brand-new business or forming an LLC for an existing company, it’s important to ask yourself this question: do I need an EIN for my LLC? There are a number of factors to take into consideration when determining whether your LLC needs a federal tax ID number (Employer Identification Number or EIN), including the type of business formation and whether you have any employees.
Do I Need an EIN for My Small Business?
An EIN is a nine-digit number assigned by the IRS. It’s used to identify employers and businesses. Typically, an EIN isn’t necessary if your business is set up as a sole proprietorship or an LLC with no employees. For these types of business formations, you may use your Social Security number for tax ID purposes. However, having an EIN helps keep your personal and business finances separate and can limit liability.
Why Do I Need an EIN Number for an LLC?
When setting up an LLC, it’s important to know the proper steps to take to protect your interests and ensure your company complies with federal and state law. If you have a multi-member LLC, you have employees, or your LLC is taxed as a partnership or corporation, you’ll need an EIN. The type of business matters as well—LLCs that are required to file payroll, employment, excise, alcohol, tobacco, or firearms taxes are required to have an EIN.
Does Every LLC Need an EIN Number?
There are several ways to set up an LLC. You can set one up as a partnership, corporation or sole proprietorship. A business set up as an LLC with a single owner who pays business taxes as part of their personal income tax return is considered a disregarded entity by the IRS, which means you don’t need an EIN to file. Additionally, if your LLC has only one member and you don’t have any employees, you don’t need an EIN. However, if you’re a sole proprietor who must file excise or pension tax returns, an EIN is required.
An LLC that uses partnership or corporation taxation must have an EIN. Typically, you must also obtain an EIN for your LLC if:
- The owner passes away and the business will be managed by their estate
- The business has been purchased or inherited and will be run as a sole proprietorship
- The LLC takes on more than one member
In some cases, an LLC may own other LLCs as subsidiaries. An LLC owning another LLC requires each LLC to have its own separate EIN.
Should a Single-Member LLC Use an SSN or EIN?
If you have a single-member LLC, there are other factors to consider in addition to using an EIN for federal tax purposes. Many banks require an EIN to open a business account in the name of an LLC. Creditors or vendors that you work with may also require an EIN to open accounts and process payments. In some states, you’ll need an EIN to report income on state tax returns. Creating a distinct identity for your business and establishing dedicated credit accounts with your LLC’s EIN can also protect you from identity theft and personal liability for business debts.
Do You Get an EIN When You Become an LLC?
After considering the pros and cons of an LLC and deciding which type of business entity will best suit your needs, another vital question to ask is: When do I need an EIN for an LLC? The answer is fairly simple. To register an LLC, its name must be approved by the state in which it’s registered. When you fill out an application for an EIN, you’re required to give the IRS your business formation date and legal business name. If you get an EIN first and the business name is rejected, you’ll have to cancel the EIN, wait for the state to approve your LLC, and reapply for a new EIN. Making sure your LLC is approved by the state before getting an EIN can save you a lot of time and headaches.
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