If you’re a sole proprietor or independent contractor, there’s a good chance you’ve used your Social Security number (SSN) to conduct business. Whether you’re filing taxes, applying for a business credit card or other general business activities, sole proprietors often have to use a SSN when there isn’t an alternative.
Unfortunately, using your SSN to do business opens you up to the risk of identity theft. Instead of using your SSN, consider signing up for an employer identification number (EIN) with the IRS to protect yourself.
What is an Employer Identification Number?
Employer Identification Numbers are nine-digit numbers assigned to businesses by the IRS so they can easily identify taxable entities. Businesses like corporations and limited liability companies (LLCs) are usually required to use Employer Identification Number so the IRS can identify them. But many sole proprietors can skate by without them and using a SSN instead.
Sole proprietors are generally required to use an EIN if they:
- Hire employees
- Open a Keogh or solo 401(k) retirement plan
- Buy or inherit a business that operates as a sole proprietorship
- Form a partnership or LLC
If you’re a one-person operation with no plans to engage in any of the activities listed above, you can probably go without an Employer Identification Number. But it’s important to note that EIN offer your identity a level of protection as well.
How Employer Identification Number Can Help Prevent Identity Theft
If you perform services to a client, you generally must provide them an identifying number, like an SSN, when you fill out a W-9 form. When you provide your SSN, you have no control over what happens to it, how the client protects it or who at your client’s organization can access it. If stolen, your SSN can be used to commit identity theft, file fraudulent tax returns and more.
It’s wise to keep your SSN protected. Employer Identification Number come in handy because they are not linked to your SSN. When you obtain an EIN, you can use it in place of your SSN when you file tax returns, submit paperwork to clients and more. In this way, you can avoid sharing your SSN with clients and other entities as much as possible.
How to Get an Employer Identification Number
If your principal business is located in the United States or U.S. territories and you have a valid SSN, you can apply for an Employer Identification Number online with the IRS. You can also fill out form SS-4 and sent it to the IRS via mail. As soon as the IRS provides you an EIN, you can use it to open bank accounts, file tax returns by mail, apply for business licenses and more.
You need to wait two weeks before your EIN becomes part of the permanent record, after which you can file an electronic return, make an electronic payment or pass an IRS Taxpayer Identification Number matching program.