Does an LLC Need an EIN?

Limited liability companies (LLCs) are useful business entities for new owners who want to limit financial risk to their personal assets. A common question for many LLC owners is whether they need to apply for an Employer Identification Number (EIN), sometimes referred to as a federal tax identification number.

EINs are like social security numbers for your business, and it's never a bad idea for an LLC to have one. These nine-digit numbers help the Internal Revenue Service (IRS) identify your business entity for tax purposes. LLC owners should know that EINs are required in most, but not all, configurations.

EINs are required for an LLC with employees. The word "employer" is in the name, so this is relatively easy to remember. Additionally, any LLC subject to alcohol, tobacco, firearm, or excise taxes, must obtain an EIN. Thankfully, the IRS makes getting these numbers a pretty straightforward process.

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Key Takeaways

• Not all LLCs are required to have EINs, though they're always good to have.
• LLCs that employ workers or pay certain taxes (alcohol, tobacco, firearm, or excise) are required to have EINs.
• The IRS makes obtaining an EIN very easy.
• In some instances, LLCs are required to obtain new EIN numbers.

Understanding LLCs

Limited liability companies are a popular structure among business owners in the United States. They shield an owner's personal assets from the debts and obligations of the company. In addition, LLC owners have the option to be taxed as an S-corporation (S-corp), where any corporate taxes are bypassed, and all profits are assessed on an owner's personal tax return.

Before an LLC can obtain an EIN, it must first be registered with the state in a process called "organization." When a business owner registers their organization as an LLC, they are viewed as a separate legal entity from that organization moving forward. This differs from sole proprietorships, which are considered by the law as the same entity as their owners.

IRS Requirements for LLCs

The IRS requires all LLCs that hire employees to obtain an EIN. Additionally, LLCs that pay alcohol, tobacco, firearm, or excise taxes must obtain an EIN. Business owners that plan on electing S-corp or C-corp tax status are also expected to acquire EINs.

The IRS used to let single-member LLCs (LLCs with only one owner) hire employees without obtaining an EIN. This is no longer the case. No matter how many owners they have, all LLCs must now apply for an EIC if they want to hire employees.

Advantages to Having an EIN

What if your business doesn't require an EIN? Should you still consider getting one?

EINs provide a slew of valuable benefits to new business owners. Here are a few to think about:

• Most banks require LLCs to have an EIN before they can open a business bank account
• EINs aren't required for business loans, but having one conveys to lenders that you have a business bank account and are on top of your business's finances.
• When your LLC is ready to hire employees, having an EIN already in place will allow you to hire more quickly.
• Single-member LLCs without employees can file their social security numbers with the IRS for tax purposes. However, having an EIN allows you to keep your social security number private.

When Should an LLC Obtain an EIN?

The IRS website includes helpful guidelines that let LLC owners know which time is the right time to obtain an EIN. Here are some questions every LLC owner should ask themselves:

• Do you hire employees?
• Is the LLC taxed as a corporation?
• Do you file tax returns for employment, excise, or alcohol, tobacco, and firearms?
• Do you withhold taxes on income, other than wages, paid to a non-resident alien?
• Do you have a tax-deferred pension, known as a Keough plan?
• Are you involved in trusts, estates, non-profit organizations, farmers' co-ops, or real estate mortgages?

If the answer to any of these questions is "yes," you're going to need an EIN.

How to Obtain an EIN

Applying for an EIN is an easy process. The IRS allows owners to apply for these numbers at no cost.

There are three methods to apply for an EIN. Business owners can apply online, via mail, and over the phone. Here are some helpful tips on each way:

• Applying Online: Applicants can apply for an EIN on the IRS's website. Once an owner submits their application, they will receive their LLC's EIN.
• Applying via mail or phone: Both methods require applicants to fill out a form called an SS-4. The IRS's website includes a helpful guide for how to fill out the form. This guide also includes an address and telephone number that allows applicants to submit their documents.

Changing an EIN

LLC owners are also able to change their EINs with ease. Whenever a business entity changes ownership or its organizational structure, the IRS often requires them to get new EINs.

The IRS's website provides a comprehensive list of which changes would apply and what to do when those changes take effect.

Wondering if an EIN is Right For You?

In business, timing is often everything. When you have questions about either establishing an LLC or obtaining an EIN for your LLC, reach out to a small business attorney. They will answer your questions and guide you toward best practices for your business.

Related Topics

• LLCs
• Employer Identification Number FAQ
• Getting an Employer Identification Number
• LLC Member Tax FAQ
• Tax Differences Between C and S Corporations