There’s a lot of talk about EIN or Employer Identification Numbers whenever LLCs are discussed. An EIN is a unique nine-digit number that the IRS uses to identify businesses for tax purposes. It’s not uncommon to come across questions from new business owners such as can I use my social security number as my EIN for LLC? It’s indeed possible for you to do that. Here’s everything you need to know about using your SSN instead of an EIN for your Limited Liability Company.
Understanding Single-Member LLCs
The IRS has different tax classifications for business entities. It mandates that certain types of LLCs must have an Employer Identification Number. However, sole proprietorships and single-member LLCs are classified differently. They can use their social security number (SSN) as an EIN to file taxes.
A single-member LLC blends the flexibility of a sole proprietorship with the liability protection of a corporation. The owner is the only member of the LLC. This is a preferred business structure for many as single-member LLCs are treated as disregarded entities for tax purposes. All the income goes to the owner who reports it on their tax returns. EIN will not be required for the disregarded entity unless it has employees or any excise tax liabilities.
Therefore, if you have a single-member LLC, it’s legal for you to use your SSN to file taxes. It’s your choice whether you want to get an EIN for the LLC or not. Even if you have obtained an EIN for your LLC, you can still use the SSN for any reportings or filings.
The IRS classifies multi-member LLCs differently. It requires that all multi-member LLCs have an EIN, regardless of whether they elect to be taxed as a partnership or a corporation.
Tax Treatment for Sole Proprietorship LLCs
The primary difference between an LLC and a conventional sole proprietorship is that the former provides liability protection. If there is only one owner, the Internal Revenue Service will treat it as a sole proprietorship for tax purposes unless the Limited Liability Company has elected to be taxed as a corporation.
This sole proprietorship LLC would thus not be a taxable entity on its own. The income and expenses of the business will be reported to the IRS using Schedule C. All the profits will go to the owner who will report them on their tax return via Form 1040. No separate tax rate schedule will apply here. The owner’s tax bracket will be used to calculate the amount of taxes due on the earnings.
Tax Treatment for C Corp and S Corp LLCs
LLCs can elect to be taxed as C Corporations. Therefore, their earnings would be taxed based on the prevailing corporate tax rules. They will be required to file a Form 1120, US Corporation Income Tax Return to report the numbers to the IRS. Once this election has been made, there are no flow-through items that owners have to declare on their Form 1040. Tax will be due on the income after offsetting deductions, credits, and any losses.
It’s also possible for LLCs to elect to file taxes as an S Corporation. Both single-member and multi-member LLCs can elect this tax treatment by filing Form 2552. LLCs that are taxed as an S Corporation aren’t required to pay any taxes on corporate profits. Members file personal income taxes on corporate profits instead. S Corporations are pass-through entities, so owners can avoid double taxation on corporate profits.
Why Should You File Taxes Using SSN?
1. Identifying Individuals
The Social Security Number is primarily used to track individuals for taxation. Filing taxes by using the SSN enables the government to accurately identify individuals and match them to their tax records. This goes a long way in preventing tax fraud.
The IRS can utilize the financial information garnered through the SSN to ensure that the individuals are accurately reporting their income and paying the appropriate amount of taxes that are due. Since the provision of most financial services is linked to the SSN, it can be difficult for individuals to try and hide their income from the IRS.
2. Access to Benefits
A valid SSN is also linked to the provision of many government benefits and services. There typically tend to be strict eligibility criteria for benefits. When they use SSNs to file taxes, individuals can remain updated on their eligibility to receive these benefits.
Since their income is reported to the government using the SSN, it gets the information it needs to make decisions regarding the provision of benefits such as Medicare, Social Security, and retirement benefits. Their eligibility for tax credits and deductions also becomes clear as a result.
3. Tax Refund Processing
If you’ve paid the government more money in tax than was due, you can apply for a refund. Using the SSN when filing taxes will make it easier for the government to accurately and efficiently process refunds.
It does that by associating individuals’ tax returns with their Social Security Number. Their eligibility for the refunds is then verified by the government and the funds are subsequently issued. Taxpayers can thus receive their refunds quickly and since this can be a vital financial relief for many, this efficiency is always welcome.
Why Should You Consider Filing Taxes Using EIN?
You can still get an EIN for a single-member LLC should you so desire. Simply file the relevant form with the IRS and it’ll get back to you in a few days with a confirmation letter and the EIN. There are many benefits of filing the LLC’s taxes using EIN, such as:
1. Establish a Separate Credit History
The credit history is an important tool that banks use to assess how much credit they can offer. You can separate your personal credit history from your business credit history with an EIN. This will help you create an independent credit profile for your business and thus open up new sources of funding, such as a business credit card, loans, credit lines, and more.
Your personal financial situation won’t have as much of a bearing on the credit profile of the business. Banks and financial institutions will be able to offer these products based on their assessment of the creditworthiness of your business.
2. Open a Business Bank Account
Banks and financial institutions will typically require an EIN when opening a business bank account. A separate bank account for your business is the foundation of good financial management. It ensures that the income and expenses of the business are tracked separately from your personal transactions.
A separate bank account for the business makes it easier to keep an eye on the money coming in and going out. When the business finances are organized properly, it becomes much easier to report them to the IRS come tax season. It also provides a clearer picture of the financial health of your business to banks so that they can make their assessments and assist you with lending options.
3. Easily Hire Employees or Contractors
If you’re looking to hire workers or contractors for your business entity, you’ll need an EIN. The number needs to be quoted to the IRS when you disclose withheld taxes and wages, and issue tax forms such as W-2s or 1099s to employees and contractors.
The EIN is necessary if your company has any activity that incurs payroll taxes. This is an effective way to meet all your compliance requirements for employment tax regulations. EINs make it simpler to report all this information to the IRS for both you and your workers.
Steps to Obtain an EIN for an LLC
The process to obtain an EIN for an LLC is simple enough. You just need to provide a few basic details to the IRS. It usually processes the application in a few days and comes back with a confirmation letter with the EIN mentioned on it.
1. Determine Eligibility
Before applying to the IRS for an EIN, ensure that you’re eligible to do so. For example, you need to be the responsible party for the LLC. If yours is a single-member LLC, that’s going to be you. Consider the hierarchy if you have a complex business structure, like a multi-member LLC, to see who is the relevant person for making this application.
2. Obtain the Necessary Information
Collect all the necessary information that you’ll need to provide to the IRS. This includes the LLC’s legal name, mailing address, the name of the responsible party, and other details. You can find most of these details on the formation documents of your LLC.
Be careful when filling out the form with all these details. Double-check once it’s completed to make sure that everything has been done properly and that there are no missing details as that could lead to unnecessary delays.
3. Apply Online
The fastest and easiest way to apply for an EIN is online. If your principal business is located in the US and you have a valid Taxpayer Identification Number such as an SSN, you can make the application online.
The application needs to be completed in one session. Access the form online and follow all the onscreen instructions. Complete the questionnaire and provide any additional information that may be required.
4. Apply by Fax or Mail
You can also choose to apply for an EIN through fax or mail. This will require completing Form SS-4, Application for Employer Identification Number. This form is available free of charge from the IRS website.
Once you’ve filled out the form and made sure that all the information is accurate, go ahead and fax it to the IRS or mail it to the relevant IRS location. The second method is a bit slower than doing it online since it takes more time for your application to reach them.
5. Receive your EIN
The IRS doesn’t take too long to process and approve these applications. If you apply online, you’ll receive it immediately. If applying by fax or mail, keep in mind that it may take up to a couple of weeks for the confirmation letter to arrive.
The EIN will be mentioned on the confirmation letter that the IRS sends back to you. Keep it in a safe place as you’ll need to use your EIN frequently. It’s possible to recover lost EIN as well by reaching out to the IRS, but the easier way is to have multiple copies of the confirmation letter in safe places so that you can always find one should the need arise.
Confused by LLC EIN Requirements? Leave It to the Experts
There are distinct benefits of filing taxes using an SSN compared to an EIN. It’s important to be sure whether you’re even eligible for that option, as EIN is mandatory in certain scenarios. If it all sounds a bit confusing, just leave it to the experts at doola’s LLC formation service.
Thousands of founders from across the globe rely on doola’s experts to start, manage, and grow their LLCs. With all this sorted for you, your time can be better spent on the things that matter most.
Should I use EIN or SSN for LLC?
Depending on the unique needs of your business, you can choose to use either the EIN or SSN for the LLC, but keep in mind that only EIN must be used in certain scenarios.
Is it mandatory to have an EIN for my LLC?
It’s mandatory to have an EIN for multi-member LLCs, those with one or more employees, or those that have elected to be taxed as C Corporations or S Corporations.
Can I use my SSN for banking purposes even if I have an EIN for my LLC?
You can continue to use your SSN for personal banking purposes even if you have an EIN for your LLC. It’s good to utilize the EIN to open a separate business bank account for your LLC so that efficient financial management can be put in place for the business.
Can using my SSN as my EIN have any negative consequences for my LLC?
Both these numbers are utilized by the IRS to identify individuals and businesses for tax purposes. While there aren’t any particular negative consequences for an LLC, it’s recommended to opt for an EIN to prevent fraud.
How can I protect myself from potential identity theft if I have an EIN for my LLC?
There remains a risk of potential identity theft as someone could use the information to obtain a fraudulent refund or report withholding for fake employees. If you suspect that may be happening, send the completed Form 14039-B, Business Identity Theft Affidavit to the IRS.