Key Takeaways

  • Independent contractors must provide a Taxpayer Identification Number (TIN), which can be a Social Security Number (SSN), Employer Identification Number (EIN), or Individual Taxpayer Identification Number (ITIN).
  • A contractor ID number typically refers to the TIN used to identify the contractor for tax reporting purposes.
  • Contractors earning $600 or more annually from a client must submit Form W-9 to the client.
  • While sole proprietors can use their SSN, obtaining an EIN offers privacy, credibility, and protection against identity theft.
  • EINs are required if the contractor has employees, forms a business entity (like an LLC or corporation), or withholds taxes on behalf of others.
  • There are no general tax withholdings on contractor payments unless backup withholding is triggered by an issue with the contractor's TIN.
  • Applying for an EIN is free and can be done quickly through the IRS website.

Do independent contractors need Tax ID Numbers? Yes, they do. Before an independent contractor can begin work for someone, the contractor must fill out a Form W-9 because their employer is required to file taxes papers on their behalf. A Form W-9 contains a tax ID number — or any pertinent data, like their Social Security number or employer ID number (EIN).

Which Tax Forms Must Independent Contractors Fill Out?

When you hire an independent contractor, you may need to give them a Form W-9 from the IRS and other forms, based on how much you pay them. You will need the information on the form when you file your taxes.

  • You will not have to fill out any tax forms for a contractor if you pay an independent contractor less than $600.
  • The W-9 is required if you pay contractors $600 or more. You present this form to independent contractors, so you can obtain pertinent data, like the contractors' names, mailing addresses, and tax information. This is similar to a Form W-4 your regular employees must fill out because it allows you to obtain a contractor's taxpayer identification number (TIN; also called the taxpayer identification number).
  • When you pay an independent contractor more than $600, you must file a Form 1099-MISC with the IRS along with the W-9. You are also required to give copies of the completed forms to the contractor by January 31 of the following year.
  • Physically send back those copies using Form 1096. In addition, you must send it and any companies of 1099 forms to the Social Security Administration by the end of February.

What Is a Tax Identification Number?

If your independent contractor runs a sole proprietorship, their default tax identification number is their Social Security number. Business owners can obtain a separate tax ID for their business. The TIN serves as a form of identification for a business like an SSN identifies a person.

Business owners must apply for ID numbers in their state, but it may be harder to manage a tax ID number. Unlike a Social Security number, which an individual can use for federal and state documentation, a business owner will have to obtain a tax ID number for each state where they have dealings.

What Is a Contractor ID Number?

A "contractor ID number" generally refers to the Taxpayer Identification Number (TIN) that independent contractors use when submitting tax forms like the W-9 or receiving payments reported on a 1099 form. The TIN can be:

  • Social Security Number (SSN) – Common for sole proprietors with no employees.
  • Employer Identification Number (EIN) – A business tax ID issued by the IRS.
  • Individual Taxpayer Identification Number (ITIN) – Used in special circumstances, typically for non-citizens who don’t qualify for an SSN.

Although the IRS doesn’t officially use the term “contractor ID number,” businesses and platforms often use it colloquially to refer to the TIN provided by the contractor.

Can Independent Contractors Provide Different ID Numbers?

Yes. For example, most forms of business entities, like partnerships, corporations, and limited liability companies (LLCs) are each assigned a federal employer identification number (EIN). An EIN is a nine-digit number assigned that business owners need in order to file and report on taxes. The IRS, in turn, will use the EIN to identify each business entity. In that way, an EIN also serves the same purpose as an SSN to a person.

Sole proprietors generally do not need an EIN, but they can obtain one if they would like. In most cases, sole proprietors will just use their Social Security numbers.

Again, an independent contractor can provide their Social Security numbers or federal employer ID numbers to clients. Depending on their situation — and especially if they have a lot of clients — they might be loath to give out their Social Security number to so many different people. They might be worried about identity thieves who might take their SSN to file fraudulent tax returns and steal their tax refunds. As such, it might be a good idea for them to obtain an EIN.

In either case, the contractor will need to provide that number to you, lest you withhold 28% of your payments to them.

Why Should Independent Contractors Get an EIN?

While not legally required for all contractors, obtaining an EIN (Employer Identification Number) is often a smart choice. Here are several compelling reasons independent contractors choose to apply for an EIN:

  • Protect Personal Information: Using an EIN instead of your SSN reduces the risk of identity theft.
  • Enhance Professionalism: Clients may view contractors with an EIN as more legitimate or business-minded.
  • Open a Business Bank Account: Many banks require an EIN to open an account under a business name.
  • Hire Employees: An EIN is necessary if you plan to hire workers.
  • Operate as a Formal Entity: If you form an LLC, partnership, or corporation, you must use an EIN.
  • Work with Certain Clients: Some clients or platforms require contractors to have an EIN, especially for compliance or internal policies.

You can apply for an EIN directly through the IRS website at no cost, and the process usually takes just a few minutes.

When Should Taxes Be Withheld When Dealing with Independent Contractors?

Most of the time, you will not have to withhold income taxes, FICA taxes (which pay into Social Security and Medicare), or any other employment taxes. However, you will have to withhold taxes on payments to the independent contractor if:

  • The contractor fails to give you a taxpayer identification number (Social Security Number, Employer ID Number, or Individual Taxpayer ID Number).
  • The IRS tells you that you have given them an incorrect taxpayer ID number for the contractor.
  • The IRS tells you that the contractor has not reported their extra income in prior years.

When Is a Contractor Required to Get an EIN?

Although many contractors operate as sole proprietors and may use their SSN for tax purposes, certain situations require an Employer Identification Number (EIN). These include:

  • Operating as a partnership, corporation, or multi-member LLC.
  • Hiring employees or planning to withhold taxes on their behalf.
  • Creating a Keogh plan (a tax-deferred pension plan for self-employed individuals).
  • Filing excise, employment, or alcohol, tobacco, or firearm tax returns.
  • Working in a state that requires an EIN for licensing or registration.

If any of these apply, a contractor must obtain and use an EIN as their contractor ID number.

Frequently Asked Questions

  1. Is a contractor ID number the same as an EIN?
    Not necessarily. A contractor ID number refers broadly to any taxpayer identification number used by a contractor, including an EIN, SSN, or ITIN.
  2. Can I work as an independent contractor without an EIN?
    Yes, many sole proprietors use their Social Security Number (SSN) instead. However, an EIN is recommended for privacy and business benefits.
  3. How do I get a contractor ID number (TIN)?
    You can apply for an EIN for free on the IRS website. If using your SSN, no additional registration is required unless you are applying for an ITIN.
  4. Do I need to get a new EIN if I change my business name?
    No, unless the business structure also changes. However, you must notify the IRS of the name change.
  5. Is it safe to give clients my Social Security Number?
    While it is legal, many contractors prefer using an EIN to protect their personal information from potential misuse or identity theft.

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