This article has been updated for the 2022 & 2023 tax years. 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 and create an IRS account 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.
In the past, I attempted to get an EIN, without success. When I stated my business did sales, not just provide services, I received an EIN. Your state may require filling out a declaration form of your sales. Ignore filing and you may receive a bill, based on their perceive estimate of sales.
IRS EIN SSN W9
Yeah, I like to make up words too.
Real words in a fake world.
This is not correct. The “Or” box is not because you get choose, but it because you have different options depending on the tax entity doing the work. You can get an EIN for a LLC or Sole proprietorship and use them for things such as business checking accounts. That doesn’t mean you get to use it for a W-9.
If you read in the instructions of the W-9 (Part 1 and Part 2), you should use your SSN for a Sole proprietorship or disregarded entity, which the case for most self-employed people. You have to form a different entity for tax purposes to use the EIN in this case, such as a LLC S corp. I would advise people to consult an accountant or other tax specialist to help them determine the proper TIN for their situation.
What are your qualifications and where are you getting your information from? I’ve never seen anything that indicates that sole proprietors cannot use their EIN.
In fact, I’ve seen much to the contrary. For example:
From LegalZoom: http://info.legalzoom.com/fill-out-w9-sole-proprietor-25235.html
“Filling Out W-9s
The form itself is extremely short and requires only that you provide your legal name, business name of your sole proprietorship, if different, address and taxpayer identification number – which is usually your Social Security number. You can, however, use an Employer Identification Number obtained from the IRS for your sole proprietorship business instead of a Social Security number. Using an EIN results in the same obligations and liabilities to the IRS as using a Social Security number.”
From Nolo: http://www.nolo.com/legal-encyclopedia/does-sole-proprietor-need-employment-identification-number.html
“Corporations and partnerships are required to have an EIN. However, if you are a sole proprietor, the IRS does not require one. Instead, you can use your Social Security Number and report your income and expenses on a Schedule C tax form (http://www.irs.gov/pub/irs-pdf/f1040sc.pdf). However, many sole proprietors still elect to use an EIN because it reduces the chances of identity theft and banks often require one to open a business account.”
From the IRS in the instructions that you reference: https://www.irs.gov/pub/irs-pdf/fw9.pdf?portlet=103
“If you are a sole proprietor and you have an EIN, you may enter either your SSN or EIN. However, the IRS prefers that you use your SSN.”
The real issue here is that you can’t, as an LLC operating as a disregarded entity, use your EIN. You have to use your SSN. This defeats the purpose of having a LLC to protect you from liability. If you’re using your personal SSN, what’s point of getting an LLC? You real person SSN is exposed and used in a suit. Not to mention anyone can steal your identity from your W9.
Love the instance EIN tip – I didn’t know about that. I would add one thing to this: once you get your EIN..save the document from the IRS with your EIN on it, and store it somewhere safe! I lost mine, and had to wait on hold for 30+ minutes with the IRS to get another copy sent to me.
Andrew Strickland above is correct. We have dealt with this issue with the IRS for the last two years, we were subject to large fines due to non-compliance. If you are a single-member LLC that is disregarded as an entity( a disregarded entity being a business type that is separate from the owner for liability purposes, but it is the SAME for tax purposes), you have to enter the owner’s SSN. It does go on to say that you can enter the owner’s EIN, however an individual owner will not have an EIN. An individual person NEVER has their own EIN, this refers to an LLC that is owned by a corporation or partnership.
You should consult a tax attorney before going down this road.
It’s so frustrating that a SP, S Corp and C Corp can protect individual SSN but the Single Member LLC as a disregarded entity has to put their SSN in the hands of businesses – often small to mid sized- that have virtually no processes or security in place to protect the information. So angry we do not have an option to protect ourselves without changing filing status to S Corp ….
“An individual person NEVER Has their own EIN”
That’s not true at all. Any individual (specifically contractors) is free to apply for an EIN and use it. These people are sole proprietors.
From the W-9 Instructions,
“If you are a sole proprietor and you have an EIN, you may enter either
your SSN or EIN.
If you are a single-member LLC that is disregarded as an entity
separate from its owner, enter the owner’s SSN (or EIN, if the owner has
one). Do not enter the disregarded entity’s EIN. If the LLC is classified as
a corporation or partnership, enter the entity’s EIN.”
Since the IRS is well aware of the fact that identity theft is a major problem why has there been no move toward providing a substitute for SSN’s? Why should taxpayers need to write their SSN’s on every check and every form and every correspondence that is sent to the IRS?