The Employer Identification Number (EIN) is, for the IRS at least, the business equivalent of an individual’s Social Security Number; it provides an identifying number for business entities. Most businesses have EINs, but not all businesses have to get them. You'll always have to get an EIN if you plan to hire people, but if you're working on your own, you could get by without one.

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There are circumstances in which sole proprietors—self-employed people working on their own—do need EINs. First, you always have to get an EIN for your business if you get involved in bankruptcy proceedings. It allows the government and your lending institution to monitor the business and serve the proper accounts. If you enter into a partnership with another person, even if that person doesn’t plan to participate actively in the business, the partnership has to get an EIN. And, surprisingly, you have to get that ID number if you purchase or inherit an already established business (but not if you just change your business's name or location).

There are reasons for sole proprietors to get EINs, even if they’re not required to do so by the IRS. Most importantly, you can give your EIN to clients who need it to complete tax forms, rather than your Social Security number. EINs are much less susceptible to identity theft than Social Security numbers.

Corporations can arguably avoid getting EINs, although if you start as a sole proprietorship and then incorporate, you have to get one. The IRS states that you only have to have that EIN if you get a new charter from your secretary of state, decide to change your business's form, or create your corporation out of a statutory merger. In general, though, it's best to assume that if you have a corporation, you'll need to get an employer tax ID number. In some cases, you may be able to avoid the identification process if you choose to be treated as an S corporation and meet your state's requirements for a closed corporation. Such exceptions are fairly rare, though, and it's best not to rely on them.

Get started Incorporate Your Business Answer a few questions. We'll take care of the rest.

Get started Incorporate Your Business Answer a few questions. We'll take care of the rest.