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 EIN number. In this post, 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.
And 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 EIN’s and use them to identify themselves, but individuals can use them to. 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-9’s. 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 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.
How to Get a Free EIN Online Instantly
Once you become aware of EIN’s, there really is no reason not to get one.
EIN’s 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.