Ever hear of an EIN? If you’re new to the world of freelancing, this term is likely something new to you. But it’s a super important part of your job, and can help when it comes to tax season.
An EIN, or an employer identification number, is a unique, nine-digit number assigned by the Internal Revenue Service (IRS) that basically identifies you as you.
If you’re operating as a corporation, partnership (like an S-corp) or a limited liability company, you definitely need to have an EIN. It will help your business be identified during tax season.
If you’re operating as an individual, it may be prudent for you to get an EIN. Sometimes, a company you are freelancing for will ask you to get an EIN. In those cases, just do it; it will make things easier for everyone involved. If you are freelancing but you hire someone to help you, that’s another case that requires an EIN. Other special cases include holding a solo 401(k), filing for bankruptcy or inheriting a business that you plan to operate as a sole owner. Sometimes, banks will also require you to get an EIN, too.
If you don’t get an EIN, you can always pay your taxes using a social security number. However, there are some benefits to having an EIN, including that it can prevent social security fraud. Additionally, for some employers, having an EIN makes you more attractive. It shows that you have experience and that you’re a sole contractor, rather than an employee.
You can easily get this number using the IRS’ website. It’s totally free, which is another benefit. The paperwork can be a bit of a slog, but it likely will be worth it come tax season. Be sure to use an address that won’t soon change so you can get the paperwork sent to you easily.
- Alicia McElhaney / She Spends Issue #49