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January 3, 2020

Q: What is an Employer Identification Number (EIN)? What is it for?

Learn what an EIN is, how it differs from a SSN, and why you should care if your freelancers have an EIN.

Ask Liquid: What is an Employer Identification Number (EIN)?

Compliance Ask Liquid

A federal Employer Identification Number, nicknamed an EIN or FEIN, is a unique nine-digit number that the IRS issues and uses to identify your business. This EIN is the number your business uses when you file and pay business taxes — think of it as your company’s social security number. Social security numbers and EINs are the FTIN (federal tax identification number) or taxpayer identification number for individuals and business entities, respectively.

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Who needs an Employer Identification Number (EIN)?

You must get an EIN if any of the following are true:

  • Your business has employees other than you. Single-member LLCs are also required to obtain an EIN if it’s going to hire employees.
  • Your business is a corporation (C corporation or an S corporation) or a partnership (both general and limited partnerships). 
  • Your business offers a Keogh pension plan.
  • Your business withholds taxes on income, other than wages, paid to a non-resident alien.
  • Your business is involved with the administration of any of the following: trusts (except certain grantor-owned revocable trusts, IRAs, and exempt organization businesses), income tax returns, estates, real estate mortgage investment conduits, non-profit organizations, farmers’ cooperatives, or plan administrators.

A business structured as a sole proprietorship with no employees is the only kind of business that isn’t required to have an EIN. But even sole proprietors sometimes choose to get EINs to keep their social security numbers private (particularly when they work with many different clients). Check out our post on business structures to learn a little more.

Why should I care if my freelancers use an EIN versus a SSN?

When your freelancers use an EIN on their Form 1099, it reinforces their classification as an independent contractor versus someone you should be hiring as a W2 employee. Proper classification ensures you stay compliant. 

How do you get an Employer Identification Number (EIN)?

It’s free and easy to get an EIN. Here are three quick ways to do it yourself:

This is how most people get their EIN and you’ll get your EIN right away (along with your official EIN confirmation notice in the mail several weeks later). To determine if you need an EIN, fill out this IRS test. Answering “YES” to any of the questions will send you to the IRS EIN application form.

Another option is to download IRS Form SS-4: Application for Employer Identification Number. After completing the form, you can either fax or mail the form to receive your EIN via postal mail within four weeks. 

If you’re international, you’ll most likely have to register via phone. (US-based applicants cannot use this method unless you were unable to get your EIN online.) Call the IRS Business and Specialty Tax Line at 800-829-4933. After answering some questions you’ll receive your EIN while on the call. Your official EIN confirmation notice will arrive via mail.

Check out the IRS instructions for completing the EIN application process here.

Liquid encourages independent contractors to use an EIN (versus SSN), reinforcing proper classification of freelancers to ensure you stay compliant. Ready to get started? Try Liquid today!

Category: Compliance Ask Liquid

Updated: January 3, 2020

Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.

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