Key Takeaways

  1. An EIN is a nine-digit number used for business identification and tax purposes.
  2. It can replace an SSN in professional contexts to protect against identity theft.
  3. EINs are essential for opening business accounts, filing taxes, and hiring employees.
  4. Building a credit profile using an EIN separates personal and business finances.
  5. EINs offer enhanced privacy and compliance benefits for business owners.

When managing taxes, business transactions, or personal finances, privacy and security are key concerns. For entrepreneurs and individuals alike, the Employer Identification Number (EIN) offers an alternative to using a Social Security Number (SSN) in various contexts. Understanding the differences, applications, and benefits of using an EIN can help protect your identity and streamline business operations.

This article delves into the benefits of using an EIN instead of an SSN, the process for obtaining one, and practical guidelines for its use.

What Is an EIN?

An Employer Identification Number (EIN) is a nine-digit number issued by the Internal Revenue Service (IRS) to identify businesses and other entities for tax purposes. Think of it as a Social Security Number for your business but with broader applications for organizations and entrepreneurs.

Below are some key differences between a SSN and an EIN:

  • EIN: Used primarily for business-related activities, such as hiring employees or filing taxes.
  • SSN: Used for personal identification and tax filing for individuals.

While an EIN is primarily issued to corporations, nonprofits, LLCs, and other forms of businesses, an individual can also obtain it. It protects personal information by minimizing the need to share your SSN and enables business owners to establish credit and financial independence for their enterprises.

You do not even need to own an LLC or other incorporated business to get an EIN. Being self-employed with a Social Security Number also makes you eligible for an EIN.

How to Get a Free EIN Online Instantly

The IRS issues Employer Identification Numbers (EINs) free. It is possible to obtain one instantly when you apply through the IRS website by following these steps:

  1. Visit the IRS Website: Navigate to the EIN Assistant tool on the official IRS site.
  2. Determine Eligibility: Confirm that your business is based in the U.S. and that you have a valid SSN or ITIN (Individual Taxpayer Identification Number).
  3. Choose Entity Type: Specify your business structure (e.g., sole proprietorship, LLC, corporation).
  4. Complete the Application: Provide details such as your business name, address, and purpose.
  5. Submit and Receive Your EIN: Once submitted, you’ll receive your EIN immediately online.

There are also alternative ways to apply for an EIN. You can do it by phone and call the IRS for international applications. You can also complete Form SS-4 and send it to the IRS by mail or fax. Processing times may vary for these methods.

Using Your EIN Number

An EIN offers significant benefits for both business and personal use. In addition to filing taxes, you need an EIN for the following processes:

  • Opening business bank accounts.
  • Filing federal and state taxes.
  • Hiring employees and managing payroll.
  • Applying for business credit or loans.

In some cases, you can use your EIN for personal uses, such as:

  • Protecting your SSN in financial or business transactions.
  • Streamlining tax reporting for freelancers and contractors.

In addition to the above use cases, there are some situations when using an EIN is a better approach than using a SSN. These include:

  • On W-9 forms when providing services as an independent contractor.
  • In business transactions requiring a taxpayer identification number.
  • When establishing business credit profiles to separate personal and business finances.

Is It Possible to Cancel an EIN ID Number?

The IRS assigns EINs permanently, even if the associated business ceases operations. While an EIN cannot be canceled, you can notify the IRS to close the account, by following the steps below:

  1. Send a letter to the IRS indicating your intent to close the EIN account.
  2. Include your business name, EIN, and reason for closure.
  3. Retain all related records, as the EIN remains tied to the business history.

In most cases, there’s no need to cancel an EIN, as it remains linked to the entity for future use.

How an EIN Can Protect You from Identity Theft

Identity theft is a growing concern, particularly when SSNs are overused in financial and business settings. Using an EIN as a substitute can significantly reduce the risk of fraud. 

For example, when you are using your SSN, you have increased exposure in business documents, tax forms, and contracts as well as increased vulnerability to theft in online transactions.

This is where an EIN can protect you. An EIN has many advantages such as:

  • Limits exposure of personal information in professional contexts.
  • Creates a layer of separation between personal and business finances.

For example, independent contractors or freelancers can use their EIN on W-9 forms to avoid sharing their SSN with multiple clients. Business owners can also open accounts and apply for credit without risking their personal identity.

Steps in Creating a Separate Credit Profile

Building a credit profile for your business using an EIN is a strategic move for financial growth and security. Below are the steps you can use to create a separate credit profile. 

  1. Set Up a Business Address and Phone Number: Create a professional presence.
  2. Register for a Business Bank Account: Use your EIN to open a dedicated account.
  3. Establish Vendor Accounts: Work with suppliers that report payment activity to credit bureaus.
  4. Apply for Business Credit Cards: Use your EIN to build a credit history separate from your personal finances.
  5. Maintain a Strong Credit Score: Pay invoices and loans on time to enhance your business’s creditworthiness.

This process not only protects your personal credit but also positions your business for growth.

Final Thoughts on EINs vs. SSNs

An EIN is a versatile tool that offers both security and convenience for business owners and independent workers. By understanding when and how to use an EIN instead of an SSN, individuals can protect their identity, streamline financial operations, and set their businesses up for success.

Whether you’re a freelancer, entrepreneur, or sole proprietor, an EIN can help you achieve your goals while minimizing risks. If you have questions about EIN applications or need legal assistance, consult with experienced professionals through UpCounsel.

FAQs

What can I use instead of an SSN?You can use an EIN for business-related transactions, tax filings, and credit applications.

What can be used as proof of SSN?Documents like Social Security cards, W-2 forms, or pay stubs typically serve as proof.

Should I use EIN or SSN for 1099?Independent contractors should use their EIN on W-9 forms to enhance privacy and security.

Can an EIN replace an SSN for personal use?No, an EIN is intended for business and tax purposes, not as a replacement for an SSN in personal matters.