LLC or Limited Liability Company is one of the most popular business structures. Sole proprietors looking to grow their business prefer going the LLC way. It is also a common choice for people registering their business for the first time.
People often refer to this business structure as a hybrid structure. That is because it combines the benefits and characteristics of a corporation and a sole proprietorship or partnership.
But while most business owners know that partnerships and corporations need EIN, there is still a lot of confusion about whether an LLC needs one.
As you might know, EIN or Employee Identification Number is a nine-digit IRS assigned unique number used for tax purposes.
But does your LLC need an EIN? Let us try to find an answer to this question.
To understand whether or not you need an EIN for your LLC, you first need to understand the classification of LLCs.
LLCs are state statute created entities. The IRS can treat them as a partnership, corporation, or a disregarded entity as per the number of members of an LLCs and the elections made by them.
Generally, an LLC is classified as a partnership for tax purposes if it has at least two members and has not filed Form 8832 to elect its treatment as a corporation. If an LLC has a single member, its treatment is similar to a disregarded entity which is separate from the owner with regards to income tax purposes.
Single-Member LLCs and EIN
If a single-member LLCs treatment is not like a corporation, it functions as a disregarded entity. All the activities of the LLC are reflected on the federal tax return of the owner. Reporting of all the profits and losses of the LLC is along with the personal income tax statement of the owner.
So, the owner can use his/her Social Security Number (SSN) for the tax returns and might not need an EIN. But if a single-member LLC has employees, you will need to get an EIN. Also, if you pay the excise tax, tobacco, firearm, or alcohol tax, you will require an EIN as a single-member LLC as well.
Others Reasons Why Single-Member LLCs Might Require EIN
Apart from the reasons listed above, there are some other reasons why a single-member LLC might require an EIN. Some of the reasons are-
- Your business has a Keogh plan
- You want to open a business account
- You want to obtain business licenses
- You want to obtain a credit line
- Protection against identity theft
- Filing bankruptcy
Multi-Member LLCs and EIN
Apart from single-member LLCs in some cases, all the other types of LLCs should have an EIN. Multi-member LLCs function as partnerships by default for tax purposes unless they do not elect to function as a corporation.
But as it is compulsory for partnerships and corporations to obtain an EIN, every multi-member LLC requires an EIN as well.
Applying for an EIN
Now that you know whether or not you require an EIN, the next step is to understand how to apply for it. Fortunately, applying for an EIN is very easy and can be done online. Visit the IRS website and look for EIN Assistant. To apply for EIN, you will have to submit form SS4 and provide identification and business details for the same.
Once the form submission is successful, the IRS will go through your application. If everything is fine, you will receive your EIN within 1-2 working days. Apart from the online application, you can also apply for EIN through email, fax, and phone. But applying online is the fastest and most convenient.
So, if you are a single-member LLC with no employees, it is possible that you might not require an EIN. Just your SSN would do. But if you elect corporation business structure, have employees, or fulfill any of the other requirements listed in this post, an EIN is a must.
A lot of single-member LLCs that do not need EIN still apply for one due to many reasons. Apart from single-member LLCs in some cases, all the other types of LLCs should have an EIN.
As compared to the past, applying for the EIN is now easier and faster due to the online application process. While you can still go the traditional way and apply for EIN through email, fax or phone, most businesses generally prefer the online method.