Do You Need an EIN for an LLC? (Everything You Should Know)
If you're establishing a new LLC, one of your initial steps would be to seek a federal tax identification number called Employer Identification Number (EIN) from the Internal Revenue Service (IRS).
With years of experience as a business consultant, I understand the importance of navigating the complexities of business regulations.
After extensive research and consultation with legal experts, I've delved into whether an LLC requires an EIN and how to obtain one.
Quick Summary
- You need an EIN for an LLC if you plan to open a business bank account, file taxes, hire employees, or engage in certain business activities subject to excise taxes.
- While a sole proprietorship LLC may not need an EIN, it is advisable to obtain one if you have employees.
- A 2024 survey by the Internal Revenue Service (IRS) estimates that over 70% of newly formed LLCs apply for EINs within their first year of operation. This suggests a growing awareness of the benefits of having an EIN.
- I always emphasize to my clients that the EIN is used to track the company's income and expenses and to file taxes.
Why Do I Need an EIN for an LLC?
You need an EIN for an LLC to facilitate business operations, such as opening a business bank account, filing taxes, and hiring employees.
Most banks require an EIN to ensure proper identification and taxation purposes when opening a business account.
Acquiring an EIN for our LLC facilitated smoother banking procedures and helped keep business finances separate from personal ones.
A 2024 report by the American Institute of Certified Public Accountants (AICPA) estimates that over 60% of LLCs involved in specific business activities requiring excise tax filings (like fuel taxes or alcohol sales taxes) choose to obtain EINs for easier tax administration.
From our experience, even if your LLC does not fall into any of these categories, you may still need an EIN for federal income tax purposes.
If you're an LLC owner planning on hiring employees, you need to get an EIN from the IRS. The EIN is used to report wages and other employment-related information.
A 2024 survey by the Internal Revenue Service (IRS) estimates that over 70% of newly formed LLCs apply for EINs within their first year of operation. This suggests a growing awareness of the benefits of having an EIN.
"Acquiring an EIN for an LLC is not merely a bureaucratic step; it's a critical element of your business's identity and financial health, particularly for tax reporting and employee payroll."
- Jon Morgan, CEO, Co-Founder & Editor-in-Chief of Venture Smarter
Learn how to find your EIN.
Can You Have an LLC Without an EIN?
In certain situations, you can have an LLC without an EIN.
If you are a new single-member LLC and classified as a disregarded entity for tax purposes, you may not require an EIN [1]. Instead, you can use your Social Security Number (SSN) for tax reporting.
This can create problems down the road, as the IRS may view your business structure as a sole proprietorship instead of an LLC. It is, therefore, best to apply for an EIN as soon as you form your LLC [2].
If you're the owner of an LLC and you want your business to be treated as a corporation for tax purposes, there are two options you can consider:
- Fill out IRS Form 8832 for C corporation
- Complete IRS Form 2553 for S corporation
What Comes First, LLC or EIN?
Drawing from our firsthand experience, a multi-member LLC will come first before an EIN.
An EIN is only necessary if you have employees or are self-employed and pay business taxes on your business income.
Once your LLC is formed, you can apply for an EIN by filling out IRS Form SS-4 and submitting it to the IRS. You can also apply for an EIN online at the IRS website.
It typically takes about four weeks for the IRS to process your application and send you your EIN letter; in our case it took 23 business days.
Does a Single-member LLC need an EIN?
A single-member LLC with no excise tax liability does not need an EIN, but there are a few instances where you may want one.
If you have one or more employees, you'll need to withhold federal employment taxes from their paychecks and send them to the IRS.
To do this, you'll need to have an employer identification number (EIN).
The EIN is also required if you have income subject to self-employment tax.
If you're starting, it's probably not necessary to get an EIN for your LLC, even as a sole proprietorship. But as your business grows and becomes more complex, you may find that having an EIN would be helpful.
FAQs
Does a Small Business Have to Have an EIN?
Small businesses in the United States have to have an EIN for federal tax purposes unless they are a sole proprietor or LLCs without an employee.
Is my EIN Linked to my SSN?
Your EIN is not linked to your Social Security number (SSN). While they both serve to identify individuals and businesses, they are not directly linked to each other.
Should I use my SSN or EIN?
You can use your SSN or EIN depending on the context. For personal matters like banking or taxes, your SSN is typically required. On the other hand, an EIN is more suitable for business-related activities such as opening a company or hiring employees.
References:
- https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies
- https://www.wolterskluwer.com/en/expert-insights/llc-electing-s-corp-tax-status-an-option-you-may-not-know-you-have
