Does A Single Member LLC Need An EIN?

If you’re unfamiliar with an EIN, it stands for employer identification number, and it’s a nine-digit number that acts similarly to a Social Security number. The IRS provides an EIN to business entities, and it can be used for a number of reasons. One of these is filing tax returns for your business, so the IRS can keep track of them.

If you’re a single-member limited liability company (LLC), then you might be wondering if you need an EIN to file a separate tax return. The short answer is no, as you only need an EIN if your LLC has more than one employee.

Choosing your IRS entity classification

As an LLC, the IRS allows you to choose your entity classification for tax purposes. For example, if you’re an LLC with two or more owners, you’ll be seen as a partnership or corporation. On the other hand, if you’re the only owner of your LLC (a single-member LLC), then you can choose to be treated as a corporation or something called a disregarded entity. A disregarded entity is similar to a sole proprietorship in the eyes of the IRS.

Here’s more information about the two different IRS entity classifications to help you make your decision:

Sole proprietorship tax treatment

If you don’t acquire an EIN and you operate a business by yourself, you are by default a sole proprietor. However, if you have employees within your LLC or you’re required to file excise tax returns, you must have an EIN.

As the LLC owner, you’ll report your annual profits and losses on your tax returns with your Social Security or federal tax identification number. The reason LLCs don’t need a separate EIN when classifying as sole proprietorships is because, as an owner, you’re not seen as an employee of the LLC by the IRS. But as previously mentioned, if you do have other employees under your LLC, you must get an EIN and file for employment taxes.

Corporation tax treatment

If you choose to receive the corporate tax treatment from the IRS for your single-member LLC, then you will be treated as a separate entity. Due to this, the IRS will need to track your corporation and tax returns, and that’s when an EIN comes into play.

It doesn’t matter if you’re an employee of the single-member LLC rather than an owner; you must obtain a new EIN if you have chosen to be treated as an S or C corporation.

When is an EIN required for a single-member LLC?

We’ve already mentioned how you need an EIN as a single-member LLC when choosing the corporation tax treatment with the IRS. However, there are some other scenarios when you might need to obtain an EIN:

Hiring employees

If you’re in the sole proprietorship tax bracket but you then choose to hire employees, you will need to obtain a new EIN. This contributes to various tax purposes, such as reporting employment taxes to the IRS.

Paying excise taxes

Again, even if you’re a sole proprietor under the IRS, you must still get an EIN if you need to pay excise taxes. This will be if your LLC engages in the business of things such as selling alcohol, tobacco, firearms, or gasoline.

Opening a business bank account

As a single-member LLC, you’re probably going to need to open a business bank account at some point. While it’s not always required, many banks and financial institutions will ask you to provide them with an EIN to open one of these accounts.

Applying for business licenses and permits

Depending on the nature of your business, you might need to apply for various business licenses or permits. Some government agencies will ask you to get an EIN and provide it when going through the application process.

Retirement plans and pension accounts

When you decide to set up a retirement plan or pension account for your single-member LLC, such as a 401(k) plan, you’ll most likely need an EIN. This is used for administrative purposes, so speak to the company you’re working with first.

Why should you obtain an EIN if you’re a single-member LLC?

There are many benefits to obtaining an EIN for a single-member LLC, with some of the main ones being:

Separating personal and business finances

Having an EIN allows you to separate your personal finances from your business finances. This is important for legal and financial reasons, as it helps maintain the limited liability protection that the LLC structure offers. It also makes it easier to track business expenses, revenue, and taxes.

Employee hiring and payroll processing

If you plan to hire employees or contractors, having an EIN is essential for complying with federal and state tax requirements. It enables you to withhold and remit payroll taxes, file employment tax returns, and issue W-2 or 1099 forms as necessary.

Business banking and credit

Many banks require an EIN to open a business bank account or apply for business credit cards or loans. Using a separate business account reinforces the division between personal and business finances and simplifies financial record-keeping.

Compliance with legal and regulatory requirements

Some business activities, such as selling certain products or operating in specific industries, may require an EIN for regulatory compliance. Additionally, obtaining an EIN may be a prerequisite for obtaining business licenses or permits from government authorities.

Tax reporting and filing

Even if your single-member LLC is treated as a sole proprietorship for tax purposes, having an EIN can streamline tax reporting and filing processes. It provides a unique identifier for your business when filing taxes, making it easier for the IRS to process your returns and correspondence.

How to get an EIN for a single-member LLC

If you’re filing as a corporation with the IRS for tax purposes, or you need an EIN for any other reasons as a single-member LLC, you must apply for it.

How you apply for your EIN number is up to you, as it can be done by mailing or faxing a completed Form SS-4 to the IRS. If you choose to apply via fax, you will receive a reply within four business days. If you choose to apply via mail, it can take up to four weeks to process before you receive a response.

Most single-member LLCs choose to obtain an EIN number by filing online through the IRS website, as you can receive your EIN immediately. You can do this in a few easy steps:

1. Determine if you’re eligible to receive an EIN online through the IRS website before you get started. This is because you are only able to apply online if your LLC is in the United States or any of its territories and you have a valid federal tax ID number, such as a Social Security number.
2. If you’re eligible, you’ll want to understand how to apply to ensure you don’t encounter any issues. Go through Form SS-4 and ensure you have all the required information readily with you. You can only complete the application in one session, so ensure you have the right information and documents and spare time. The online application process will expire if you’re inactive for over 15 minutes.
3. Once you’re all set up, you’re ready to go through and fill out the application online. Ensure you review all your information before submitting it. If approved, the IRS will provide you with a new EIN immediately.