What is An Employee Identification Number and Why Do I Need One?

ImageCongratulations!  You are opening a new bank account or getting ready to work for a new client when you are asked for an EIN for your business.

More than likely, as a start-up business, you have set up your business as a sole proprietor.  You remember being told that as a sole proprietor you will be reporting your business income on your personal tax return.  Therefore, you can use your social security number, right?

The EIN is your employer identification number for your business.  Theft of taxpayer’s identities has become a growing, widespread problem.  Identity thieves steal taxpayer’s Social Security numbers and use them to file fraudulent tax returns and obtain tax refunds. For this reason, it’s wise to keep your personal Social Security number as private as possible. Also, if you perform personal services as an independent contractor, you must provide an EIN or Social Security number to your clients, or the client will be required to withhold 28% of your payments. Obtaining an EIN allows you to avoid having to provide your Social Security number to clients and other members of the public.

A free service offered by the Internal Revenue Service, tax payers can apply for an EIN online at www.irs.gov and search for form SS-4, Application for Employer Identification Number.  You can also apply for an EIN by fax, mail or telephone.

Advertisements

One thought on “What is An Employee Identification Number and Why Do I Need One?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s