When Do You NOT Need a Tax ID Number?

If you have a business, you might be wondering whether you really need a tax ID number. There are situations in which you don’t. If you are a sole proprietor (a single member business) and you don’t hire employees, then you probably don’t need an EIN. A lot of people fall under this banner, such as hobbyists, and professionals who offer services (such as bookkeepers and accountants). You file your taxes as a Schedule C rather than filing a separate tax return, so you can file everything under your own social security number or ITIN.

However, being a sole proprietor with no employees doesn’t necessarily mean that a tax ID number won’t be useful. It can be used to open business bank accounts, qualify for reseller accounts, get licenses and permits, and more. Being a sole proprietor with no employees doesn’t mean that you can’t get an EIN if you don’t want to. It’s just a different way of identifying your business that is frequently used if you are going to be taxed separately.

Additionally, sole proprietors don’t have to pay business taxes, though they do need to pay self-employment taxes. Entrepreneurs considering a sole proprietorship should first consider the risk factors and the likelihood of them being sued.