An EIN is to a business as a SSN is to a person. An EIN is an “employer identification number.” An SSN is a “social security number.” The IRS tracks your personal tax filings with your SSN, just as it uses your EIN to keep tabs on your business filings. For example, if you want to secure an LLC, hire staff, or establish your business credit, you need an EIN.
However, regardless of your business type, you must have an EIN number when you have at least one employee. Sarah can keep using her SSN when paying business taxes until she grows her business by adding paid staff.
You do however need a new EIN when you change business types or transfer the ownership to someone else. If Sarah wants to establish her graphic design business as an LLC before hiring an employee, she should create the LLC before applying for an EIN.
As a business owner, you can use an EIN to:
-Opening a business bank account
-Form an LLC and hire employees
-Changing your organization type
-Establish business credit
-Establish pension, profit sharing, and retirement plans
-File employment, excise, alcohol, tobacco, or firearm taxes