Do You Need an EIN? A Quick Guide for Freelancers and Solopreneurs
In the USA, all organizations with subordinates or employees working for them must have an EIN. Nevertheless, this rule is different depending on the type of business activity of the subject, for example, freelancers and solopreneurs. Freelancing has been on a constant surge in the US market as more and more people become freelancers and solo entrepreneurs. This has led to building a lot of confusion and several questions concerning EIN have been created in the minds of freelancers or solopreneurs. If you are a freelancer or any other person who is legally self-employed or running your own small business, you may be asking yourself if you require an Employer Identification Number (EIN) or not.Â
Fear not. We are here to clear this confusion and will explain what EIN is, its advantages for freelancers, and how you can obtain your EIN in the USA. Stay with us until the end of this article; every aspect of EIN will be clarified by the end of this article.
What is EIN?
EIN is a familiar term associated with business environments in the USA. Employer Identification Number or EIN is a nine-digit number assigned to various business organizations by the Internal Revenue Service or IRS. Besides EIN, other names used are Federal Employer ID Number, Federal Tax ID Number, or FEIN. In nonprofessional terms, one might describe EINs as being similar to a business’s Social Security Number (SSN). Employers in business need to acquire an EIN if the company has an employee or more than one employee.
EIN is used for federal tax reporting, applying for business accounts, and other related uses. It is very important to protect the private data of entrepreneurial persons because EIN is used legally instead of SSN by business persons. The kind of form the IRN uses to get information about the income from invoices is the employer identification number. The sole intention of the IRS is to learn about your business finances, not your health records, credit history, or anything else you or I would consider personal.
Do freelancers and solopreneurs need an EIN?
The short and simple answer to this query is ‘NO.’ However, this is again a matter of whether freelancers and solopreneurs want to get an EIN. Some of the business structures practiced by the USA for freelancers and solopreneurs include the use of social security numbers for all legal actions instead of the EIN. To further elaborate on this, the following are instances when you will be compelled to have an EIN. If you are involved in any of the following organizations, you will need an EIN: These organizations may comprise farmer cooperatives, investments in real estate, or even trusts. Additionally, if you plan on having a little assistance in your business and hiring someone to work for you, then you need to get an EIN. Besides, if you have a tax exemption, you decide to file taxes as a corporation, you report the business for bankruptcy then you will need EIN for the business.
Benefits of EIN for Freelancers and Solopreneurs
To sum up, freelancers and solopreneurs get a number of advantages when they obtain EIN. The benefits of having an EIN are referred to comprehensively later in this section. Below is expanded information on the topic. It is remarkable that identity takes one of the leading positions in the list of the most crucial things for a person. Being a freelancer or solopreneur, getting an EIN is beneficial in the sense that one’s personal information will not be exposed. Furthermore, if you have your EIN, you can save yourself from criminals exploiting your identity for criminal purposes because you are not likely to use the social security number that contains your details.Â
Now, I shall list down another significant advantage of an EIN, especially for those who are non-residents of the United States: An EIN assists a non-US citizen in starting a business in the United States of America will need an EIN. These can be farmer cooperatives, real estate investments, trusts Cooperatives, & Other Similar Associations. In addition, if you decide to have an employee assist you with the work in your business and He or she will work on it, then you will require an EIN. Besides this, if you get tax exemption status, you decide to file taxes as a corporation, or you declare bankruptcy, you will require an EIN for your business.
Apart from privacy and setting up a US-based business, having an EIN also becomes important if you don't want to use your name for your business. If you have an EIN, you can use a Doing Business As (DBA) name instead of your name for business operations. Moreover, if you have an EIN, you can apply for a business bank account in the USA. You can open a business bank account under your DBA name with the help of your EIN. Having an EIN also becomes important for establishing your credit history. A great credit history builds the confidence of freelancers and solopreneurs and comes in handy in getting loans easily. Â
Steps to Get an EIN for Freelancers and Solopreneurs
It is extremely easy for freelancers and solopreneurs to get an EIN in the USA. They are required to follow some simple steps, and they can get their EIN easily. However, it is essential to note that you must have a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN) to apply for an EIN. Furthermore, you can't have an SSN or an ITIN if you are a non-US citizen. Therefore, you will need to send a mail or a fax of the SS-4 form to the Internal Revenue Service (IRS). It might take around 20 to 45 days to get a response from the IRS. If you need the EIN urgently, then you can get special EIN services from various service providers in the USA. They can get you an EIN in less time.Â
The hassle-free process of getting an EIN for freelancers and solopreneurs is given below.Â
The first procedure is going to the official page of the IRS (irs. gov). There you will the EIN Assistant Tool. And you are then directed to a screen that you click on ‘Apply for an EIN Online’. Subsequent to this, you will have to log-in where you will click on ‘Begin Application’.
The next step is to fill your details in the application form; your name, social security number/individual taxpayer identification number, address, phone, etc.
Once you have correctly entered all the information and have verified everything, your application is going to take the next step to be submitted on the IRS website.
Shortly after you complete the application, the menu provided will offer you different ways through which this EIN number can be conveyed to you. It is available for immediate download in PDF format or one can choose the mobile phone version or the option of receiving it by mail takes about four weeks.
Be very cautious with your EIN letter because if you lose it then you won't be getting it again. Then you will have to request the IRS to provide you with the 147C letter.Â
Conclusion
Although freelancers and solopreneurs don't need to have an EIN, having one helps them in various business activities. If you are a US-based freelancer or solopreneur, then you must have a social security number or an individual taxpayer identification number. Still, you should be aware of the benefits of having an EIN in the USA. These benefits are explained in detail in the above article. Some benefits of EIN are that you can open a business bank account, save your personal information from getting leaked, and build a credit history. Obtaining an EIN is quite simple. You just need to visit the IRS website, fill in your details, and apply, and you can get your EIN instantly. If you follow all these steps properly, then getting an EIN will be an easy job.Â