EIN Requirements for Single-Member LLCs Explained

As a new owner, you want to ensure you have covered everything when starting your business. Setting up a limited liability company (LLC) gives you protection and tax benefits. An LLC allows you to choose which business structure you want to get taxed as. Despite its simple structure, when does a single-member LLC need an EIN? 

What Is an EIN and Its Purpose?

The Internal Revenue Service (IRS) issues an employer identification number (EIN) to identify a business entity. An EIN may be necessary when filing tax returns or opening a single-member LLC bank account. Setting up an EIN can give your LLC credibility and make it easier to collect payments. 

What Is the IRS Entity Classification?

An LLC is a legal entity established at the state level. For income tax purposes, the IRS classifies an LLC as a corporation, partnership, or as part of the owner’s tax return. The IRS determines how an LLC is treated for tax purposes – by its number of members, and if the LLC has elected specific tax treatment on Form 8832 Entity Classification Election.  

The IRS automatically treats an LLC with more than one member as a partnership. However, an LLC can treat the election as a corporation for tax purposes. You can make this election whether the LLC has one or multiple members.  

Tax Treatment for Solo Proprietorships

A sole proprietor operates an unincorporated business on their own. Even if the sole proprietorship opens an LLC, any taxable income or loss generated gets reported on their personal income tax return. The income that flows through gets taxed at the sole proprietor’s individual tax rate, which is often less than the corporate rate.   

The IRS considers an LLC a disregarded entity when its taxable income or loss flows through to the sole proprietor’s personal tax return. The owner includes Schedule C Profit and Loss from Business with their income tax return to report the LLC’s taxable profit or loss. All activity falls under the owner’s social security number; however, you can also list the LLC’s EIN on the form.  

Tax Treatment for Corporations

When a single-member LLC makes the election as a corporation, the company must file a separate corporate tax return every year. When an LLC wants to be taxed like a corporation, the IRS considers it a C corporation. The single-member LLC must file Form 1120, U.S. Corporation Income Tax Return and remit any taxes due.  

However, a single-member LLC can further elect to be taxed like an S corporation. Under an S corporation status, the entity’s taxable income or loss passes through to the owner’s personal income tax return. A newly established LLC must make the S Corporation election on Form 2553 within two and a half months from the beginning of its tax year.  

The company must file Form 1120S annually; however, no tax payment accompanies the return. Any taxes due are paid by you personally.

When Is an EIN Required for a Single-Member LLC?

A single-member LLC with employees must obtain an EIN. The LLC is responsible for filing and paying employment taxes on wages paid, so it must report under its own EIN.

An EIN is also required when your single-member LLC sells goods or services that are subject to excise tax. Examples of goods or services commonly subject to excise tax include fuel, sports and fishing equipment, tires, or indoor tanning services. 

In addition to filing and paying taxes, there are other reasons why a single-member LLC may need its own EIN. For example, your LLC may need an EIN to open a bank account, or the state where you have opened your LLC may require that you obtain an EIN.  

Benefits of Obtaining an EIN for a Single-Member LLC

When does a single-member LLC need an EIN? If you plan to hire employees in the future, you will need an EIN. By setting up an EIN now, you can avoid the headache of late filing penalties and delinquent returns when you do end up hiring employees.  

Even if your single-member LLC isn’t required to have an EIN, there are benefits to having one. With an EIN, it may be easier to open a business bank account in the name of the LLC. Some companies may require a taxpayer identification number to process payments. Providing your social security number could expose you to identity theft. Instead, you can provide your LLC’s EIN.  

Steps to Obtain an EIN for a Single-Member LLC

You can apply for an EIN by mailing or faxing your completed Form SS-4 to the IRS. When sending your form via fax, you can expect a reply within four business days if you provide a return fax number. Should you choose to mail your completed form to the IRS, it can take four weeks to process.  

You can also obtain an EIN by filing online through the IRS website. Once you complete the online process, you immediately get your EIN.  

There are a few steps to take if you plan to file online: 

• Determine eligibility: You may only apply for an EIN online if your business is in the United States or U.S. Territories and you have a valid taxpayer identification number, such as a social security number. 
• Understand the application: Before starting the application, review the Form SS-4 to ensure you have all relevant information. You must complete the application online in one session. When you don’t have all the information you need to complete the form online, you won’t be able to save what you have filled out and return later to finish it. After 15 minutes of inactivity, the online application expires and you must start over.  
• Complete and submit the application: Once the application is complete and submitted, the IRS immediately sends your EIN.  

What Happens if a Single-Member LLC Doesn’t Have an EIN When Required?

A single-member LLC that’s just starting may not require an EIN. Suppose your company grows and you need to hire employees. In that case, you need an EIN to submit withholding tax and file payroll returns. Similarly, an LLC that collects excise taxes needs an EIN for reporting and payment purposes. If you delay getting an EIN for an LLC, the IRS could charge you with hefty penalties and fees for delinquent tax payments and returns.  

doola Makes it Easy to Set up Your New Company

While getting an EIN for your LLC may seem unnecessary, there are plenty of reasons to do so. An EIN can give your company credibility and make opening bank accounts in your LLC’s name easier. Plus, you can stay compliant if you decide to hire employees in the future.

If you are opening a new company, doola can help. Whether you need assistance forming your business, getting your EIN, or staying compliant with your company filings, doola is an easy and affordable option.  

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