Do You Need an Employer Identification Number?

Determining if you need an employer identification number (EIN), is not always straightforward. Not all businesses require an EIN, but there are instances where you aren’t obliged to have one, but will need one regardless.

When starting your business, it is important to follow all regulations set forth by the state of Arizona as well as the Internal Revenue Service (IRS). The IRS handles issuing EINs to companies, and the EIN is your identification number that you will use for filing taxes (if applicable), applying for bank accounts, and paying any business-related taxes.

The EIN Rules as of May 2012

Starting May 21, 2012, the IRS changed rules regarding the EIN to ensure all taxpayers were treated fairly. They limited the issuance of an EIN to one party per day to simplify the process.

Per the new EIN rules, if you have employees, you are required to have an EIN. Also, if your business operates as a corporation or partnership, you must have an EIN. Other instances where you may be required to receive an EIN include:

  • If you file tax returns for alcohol, tobacco, firearms, employment, or excise tax.
  • If you withhold taxes on income aside from wages that are paid to a non-resident alien, an EIN is required.
  • You currently have a Keogh plan in place.
  • You have an organization that involves program administrators, farmers, non-profit organizations, real estate mortgage investment conduits, trusts, and estates.

Does a Sole Proprietor Require an EIN?

Not all sole proprietors are required to have an EIN. Instances where a sole proprietor may need an EIN include, but are not limited to:

  • Having employees;
  • Using a Keogh or Solo 401(k) retirement plan;
  • Incorporating to form a limited liability company or transferring to a partnership status;
  • Filing for bankruptcy;
  • Purchasing or inheriting a business that will be run as a sole proprietorship.

Benefits to Having an EIN

While your business may not be required to have an EIN, it may be in your best interest to have one. Speak with an attorney about the implications and liability associated with an EIN versus not having an EIN.

When you have an EIN, your business accounts and operations are no longer associated with your personal social security number; therefore, you might decrease your risk of identity theft while operating a business. As an independent contractor, using your EIN means you do not have to use your social security number for clients, too.

For assistance with setting up your business and determining if an EIN is necessary (or beneficial), contact a business attorney at Udall Shumway, PLC.

 

This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding An Employer Identification Number, or any other litigation matters, please feel free to contact Roger C. Decker at  480.461.5343, log on to udallshumway.com,  or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.