Do you want to earn self-employment income without disclosing your Social Security number to everyone you work for Fortunately, there is a way – the IRS Employer Identification Number, or EIN number. In this article, I’ll share why you should and how to get an EIN number to protect yourself from identity theft that can result from a stolen SSN.
Starting your own business and receiving side income (non-employee compensation) can be an excellent way to better your financial situation. But there are some serious knowledge gaps when first getting started that can scare people away from launching. And many of them center around the tax laws. So, I want to help break down some of those barriers.
Previously, I shared how to pay estimated taxes quarterly. I’ve also shared how you can take your retirement savings to the next level with self-employment retirement accounts, including the SEP IRA, Solo 401K, and the SIMPLE IRA. Today, I want to share how you can protect yourself from the dangers of sharing your Social Security number to others. Let’s get started.
What is an EIN?
EIN is an acronym for “Employer Identification Number”. It is also referred to as a Federal Tax Identification Number (FTIN), Taxpayer Identification Number (TIN), or Federal Employer Identification Number (FEIN). An EIN is a unique, 9-digit identification number that is assigned by the IRS to identify business entities for tax purposes.
Corporations, business, trusts and other organizations can apply for EINs and use them to identify themselves, but individuals can use them too. And you don’t have to have an LLC, S-corp, or other registered business entity to get one. You can simply be a sole proprietor with a Social Security number who earns self-employment income.
How an EIN can Protect you from Identity Theft
Giving your SSN to strangers is a scary prospect. Even if you have a business relationship with those strangers, erring on the side of caution is the best way to protect your identity.
With an EIN, you can use it in place of a SSN on W-9s. Any company that pays you over $600 in a given year is required to collect a W-9 from you in order to file a 1099-MISC or 1099-NEC form with the IRS and send you a copy. And you have the option to use either your SSN or an EIN (as seen in the image to the right) when filling it out. How is using an EIN instead of a SNN beneficial?
Your SSN is the most sensitive piece of personal identification out there. It can be used to fraudulently create credit cards, loans, and lines of credit, or even to commit taxpayer identity theft and claim a refund in your name. An EIN cannot. The credit bureaus and credit issuers can tell the difference between an SSN and EIN number, limiting the possible damage to your credit profile, should your documentation get in front of the wrong people.
Important side note: I’d also highly recommend that readers get an Identity Protection PIN from the IRS as well, as it will help protect against tax Id fraud.
How to Get a Free EIN Online Instantly
Once you become aware of EINs, there really is no reason not to get one.
EINs are free, and you can get one instantly on the IRS website. Here’s how to get one.
- Go to the IRS EIN application.
- Go through the application process.
- If eligible, you’ll instantly get an EIN (keep this in a safe place!).
That’s it! The only weird caveat is that the online tool only works Monday through Friday from 7 a.m. to 10 p.m. EST.
Check out my comprehensive Social Security overview article for everything you’d want to know about Social Security.