Do You Need an EIN?

If you spend any time in online forums for independent workers, there's a specific question that surfaces from time to time. Like clockwork, once every few months someone will ask: "Do I really need an EIN?"

If you're not familiar with the acronym, it might inspire a flurry of online searching. "Wait—do I need an EIN?" you'll wonder, watching the responses tick in. 

Some people say yes; after all, it's easy to get one. Others say no, or advise you to wait until it becomes necessary. Sometimes, an employer will make the decision easy by simply requiring an EIN. 

Read on to learn what an EIN is, the benefits it can provide and some key factors to consider while making your decision.

What Is an EIN?

Let's start with the basics. EIN is an acronym, but what does it stand for? 

EIN is short for "Employer Identification Number." It's essentially the business version of your Social Security Number. You'll use your EIN on tax forms, usually in place of your Social Security Number.

Applying for an EIN is simple. It's also completely free. You can complete the necessary forms online, through the Internal Revenue Service's website. Or, you can also apply for an EIN via phone, mail or fax, if you prefer.

If you use a third party service, they may charge you a fee. You'll have to decide whether the convenience is worth the cost. 

One important caveat: You'll need a Social Security Number or an Individual Taxpayer Identification Number to apply for your EIN. 

What Benefits Does an EIN Offer?

Before applying for an EIN, you should evaluate the potential benefits. This will help you determine whether an EIN would be helpful in your situation.

The key perks of having an EIN include:

• Privacy: When you have an EIN, you won't need to share your Social Security Number with clients. This can help your personal information stay safely concealed.
• Banking: If you plan to open a business bank account, you'll need an EIN.
• Credit Cards: An EIN will allow you to open a dedicated credit card for business expenses.
• Licenses and Permits: Depending on your industry, you may need to submit an EIN on official documents. These may include licenses for service providers, or permits for business activities.
• Long Term Business Growth: Having an EIN will make it easier to hire employees and create a payroll system.

The bottom line? Securing an EIN is easy and free, and EINs offer compelling benefits. Once you understand these basics, you can determine whether or not you're eligible. 

And if you're not eligible now, keep in mind that you can always take steps to become eligible in the future. 

Who Needs an EIN?

So, now that we've laid the groundwork, who actually needs an EIN? In a nutshell, small business owners can greatly benefit from securing an EIN, and may find it necessary to do so.

That being said, the gig economy has transformed our notion of what a small business owner looks like. Today, there are many ways to describe workers who may need an EIN. Examples include:

• Small business owners
• Self employed workers
• Sole proprietors
• Independent contractors
• Freelancers

Of course, there is significant overlap between these different classifications.

In a nutshell, anyone who is responsible for witholding their own taxes may want to consider forming a small business and applying for an EIN.

Who Doesn’t Need an EIN?

If you don't own a business, you don't need an EIN—nor are you eligible for one. 

The reason is simple: If your employer files income taxes on your behalf, there is no need to submit an EIN anywhere. The typical full time employee simply does not encounter situations when an EIN would be necessary.

That said, you may find it helpful to form a business at some point. In the gig economy, plenty of people who don't run a full-fledged business may have side hustle. Perhaps you write book reviews for magazines, or sell antiques on Etsy. You might pick up extra contract work in your field, or bake custom-ordered cakes on the side.

If you're responsible for withholding taxes on some portion of your income, an EIN may be worth considering. To become eligible, you'll need to form a business. Most people choose to create a Limited Liability Corporation (LLC). 

But as long as you operate primarily as an individual employee, you won't have to worry about gettin an EIN.

Final Thoughts

Deciding whether to secure an EIN is one of many decisions current and potential small business owners face. 

Fortunately, GoSite can help make other business decisions much easier. If you need help with:

• Building a user-friendly website
• Managing your online reputation
• Compiling a hub of customer data
• Communicating with customers
• Handling online payments

...GoSite is here to help!

Looking for more information about your business' unique needs? No problem. Contact our team today to set up a demonstration of how our tools can work for you!