Does an LLC Need an EIN?
An LLC needs an EIN if it fits any of the following criteria:
- Has 2 or more members (owners)
- Has Employees
- File Employment, Excise, or Alcohol, Tobacco and Firearms Tax Returns
- Witholds taxes on income, other than wages, paid to a non-resident alien
Does a Single Member LLC Need an EIN?
Most Single Member LLCs will need an EIN because an EIN is required to open a business bank account. Without having a separate business bank account, a single member LLC risks losing their limited liability status if they accrue business debts that they are unable to pay or are sued.
Why You Should Get an EIN Even If Not Required
Obtaining an employer identification number is a practical way to separate business accounts from personal finances. Many entrepreneurs take advantage of the number to simplify bookkeeping. Additionally, an EIN makes it easier to open business bank accounts and mitigate identity theft risk.
EINs Needed to Open a Business Bank Account
Most credit unions and banks only approve new business accounts if you have an employer identification number. To open a savings or checking account for your limited liability company, you need to submit several documents, including an EIN confirmation letter. Some financial institutions like Bank of America apply this requirement to all businesses, including sole proprietorships.
Meanwhile, an LLC without an EIN risks losing its limited liability status.
Identity Theft Protection
As an owner of a single-member LLC, you can mitigate identity theft risk using an EIN in place of a social security number (SSN). Thus, you furnish vendors and clients with an employer identification number when conducting business transactions. Although bad actors may attempt to commit fraud with an EIN, the risk is significantly lower than an SSN.
Frequently Asked Questions (FAQs)
Should I get an EIN or LLC first?
Registering your limited liability company is a vital first step that prepares you for the EIN. Without a registered LLC, you risk attaching an unavailable business name to your EIN. Hence, you must get the business name approved to ensure availability before heading to the Internal Revenue Service to obtain an employer identification number.
At the same time, IRS forms require you to enter your LLC’s formation details. Although you can still obtain an EIN before registering the business with the state government, it is not prudent.
Do I need an EIN to open a bank account for an LLC?
An employer identification number is a standard requirement when opening a business bank account for your LLC. Depending on a bank’s policies, sole proprietorships and single-member limited liability companies do not require an EIN to open bank accounts. These business structures are not taxable entities. Hence, there is no need to worry about submitting a federal tax ID.
Some banks and credit unions accept social security numbers when opening new accounts. Thus, you should check with the individual financial institutions before submitting documents.
Can you have an LLC without an EIN?
Once you form an LLC, familiarize yourself with the laws associated with this business structure. If you operate a multi-member limited liability company, it becomes mandatory to obtain a tax identification number for the business. Conversely, a single-member LLC can still operate as a non-taxable entity. This tax status (also known as a disregarded entity) allows you to file returns with the Internal Revenue Service as an individual.
If your business has one or more employees, you must apply for an EIN. On the other hand, as an owner of a single-member LLC without employees, you can still elect to file returns as a corporation. Opting for this route compels you to obtain an EIN.
Do I need an EIN for an LLC with no employees?
No, your business does not need an employer identification number if you do not employ any workers. As such, you rely on your social security number for identification and file tax returns as an individual.
Does a two-member LLC need an EIN?
Yes, two-member LLCs must obtain an EIN for tax purposes. By obtaining the federal tax ID, you take advantage of the limited liability benefits. Additionally, you avoid exposing social security numbers when conducting transactions with vendors and clients.