8 Benefits for Freelance Writers to Obtain an EIN 

Writers may develop content for a variety of media, with online content currently experiencing the greatest growth. These writers can work from virtually any location, provided they can access the internet. Many writers are self-employed as independent contractors, commonly known as freelancers. As a result, they can receive the benefits of an EIN for freelance writing.

An Employer Identification Number (EIN) is a unique nine-digit number that the Internal Revenue Service (IRS) issues to business entities operating in the United States, typically for the purposes of reporting employment taxes.

Freelance writers need to pay taxes on their income, like any other occupation. As independent contractors, they need to share a tax identification number (TIN) with anyone who receives writing services. The TIN has traditionally been the writer’s own Social Security Number (SSN), but an EIN offers numerous benefits over an SSN.

Do I Need an EIN as a Freelance Writer?

Freelancers often wonder if they need to obtain an EIN and how it will affect their business finances. For example, clients might ask you to provide one for tax purposes if you’ve worked under 1099 for a long time. The IRS requires an EIN if you receive income from sources like farmers’ cooperatives, real estate investments, and trusts. You also need an EIN if you have employees, which freelance writers rarely do. As a result, an EIN for freelance writers is usually an option for their occupation rather than a legal requirement. However, it does provide the following benefits as compared to an SSN.

1. Identity Theft Protection

The risk of identity theft is particularly high when you provide your SSN to anyone and is an increasingly common occurrence. The growing value of personally identifiable information (PII) gives malicious actors a strong incentive to obtain SSNs, often on a large scale. Data breaches are often more a matter of when they will occur rather than if they will occur. In addition, continuing technological advances mean that an organization will always be vulnerable to future threats, no matter how well they’re currently protected.

Obtaining an EIN avoids the need for freelance writers to provide their SSN to anyone they contract with to write. Essential tax documents like 1099s, W-9s, and invoices require some type of TIN, which puts writers at risk when they use their SSNs. In addition to a client suffering a data breach, some job offers are scams specifically designed to steal SSNs and other forms of PII.

While having your EIN exposed is certainly undesirable, it’s nowhere as risky as a compromised SSN. It’s, therefore, preferable to list your EIN on documents that clients and employers can access.

2. Separate Individual and Business Finances

Freelance writers also benefit from using an EIN because it allows them to separate the finances of their business from their individual finances. This is especially true for freelancers who have registered their business as a single-member LLC, which is specifically designed to provide its owner with financial and legal protection.

Freelancers who blur the lines between business and individual transactions are at increased risk for financial problems, primarily those related to tax payments. An EIN helps keep these transactions separate by allowing freelancers to file tax returns on their business with the EIN while continuing to use their SSNs for individual tax returns. If you’re self-employed as a freelance writer, using an EIN to pay your business taxes separately from your personal taxes also helps avoid late or incorrect filings that can incur penalties and helps avoid mistakes when filing your taxes.

Freelance writers often do their own accounting and bookkeeping, especially when they’re just starting out. The separation of business and personal finances allows an EIN to help them track business expenses and other transactions more easily. This advantage also reduces the effort needed to declare these expenses as deductions on your tax returns.

An EIN is particularly useful for freelance writers who use their personal property for business purposes. These include maintaining an office at their residence, along with a computer system. In addition, journalists routinely use their own vehicles for travel when researching a story.

3. Boosts credibility

Freelance writers often struggle with clients taking them seriously since they usually operate as sole proprietors rather than legal business entities. They can often facilitate the process of building the business and brand reputation by supplying clients with an EIN instead of an SSN to comply with tax requirements. An EIN tells clients that your business has already been vetted by the IRS.

This practice improves the writer’s credibility by bolstering the perception that they’re a business owner instead of an individual. For example, an EIN can often accelerate the process of getting a loan, since it helps show lenders that you’re serious about performing freelance writing as a business.

4. Ability to Obtain a Business Bank Account

Opening a separate account for your writing business adds credibility to your writing business by separating personal and business finances. In addition, maintaining separate accounts allows you to view your business expenses, income, and transactions more easily, which is particularly useful when paying taxes. Banks may require business owners to provide an EIN before allowing them to open a bank account for their business, although some will do so with an SSN. This requirement varies greatly based on your business structure and financial institution, so you’ll need to check with your own bank for more information.

5. Establish Business Credit

Establishing and building business credit is another benefit for freelance writers who obtain an EIN, which is typically required to apply for a business credit card. Once the application is approved, writers can begin building their business’s own credit history separately from their own. Businesses can often obtain credit and loans with better terms than individuals. The separation of business and personal credit also means the credit standing of one entity won’t affect the other.

6. Establish Retirement Investment Accounts

Once a writing business begins earning a regular income, it’s time for writers to begin planning for their financial future. Writers who obtain an EIN can invest in their retirement and gain tax advantages with plans like a Solo 401(k), SEP IRA, and SIMPLE IRA. In addition, financial institutions often require an EIN for certain types of accounts, especially retirement accounts.

7. Retain the Ability to Hire Employees

Freelance writers rarely need staff, but it’s better to already have an EIN than to apply for one after suddenly discovering that they need to hire an employee. This possibility can occur when a writer’s popularity suddenly increases to the point that their business has significant administrative overhead. Additional reasons for needing staff include accounting and fact-checking. In some cases, writers with more work than they can handle may subcontract the overflow to another writer. The demand for a freelance writer’s services is often highly volatile, making it crucial to respond quickly to these changes by hiring staff as needed.

In addition, hiring employees when you have an EIN avoids the need to provide your SSN on the onboarding paperwork and provides a dedicated account for paying payroll taxes. Furthermore, it allows you to withhold employee taxes and contribute to pooled funds like Social Security and Medicare.

8. Create Business Profiles with Payment Applications

Freelance writers typically receive payments through platforms like PayPal or Venmo, especially those who write online content. These applications simplify the billing process, but the IRS also requires them to report payments when a customer’s gross sales exceed $600. This reporting requirement for federal income taxes is new for 2024 and may change in subsequent years. Furthermore, some states have their own reporting requirements for state income taxes, which may be based on earnings, number of transactions, or both. Payment platforms then issue a form 1099-K to qualifying accounts, and an EIN can help facilitate this process.

Conclusion

The Bureau of Labor Statistics (BLS) reports that the job growth rate for writers is expected to average five percent between 2023 and 2033, which is about average for occupations in the US during this period.

Starting a writing business initially requires you to find clients who need your services, meet their needs, and grow your clientele. You’ll also need to maintain the technology needed to send content and correspond with your clients, especially if you’re a freelancer working from home.

Once your business is a success, you should consider obtaining an EIN for it, even in cases where it isn’t legally required. An EIN’s ability to protect you from identity theft is especially helpful for freelance writers, who typically work from home. These writers correspond with clients via the Internet as their primary means of communication, making it critical to avoid disclosing personal information like their SSNs. The separation of business and personal finances is another benefit that makes an EIN attractive to freelancers, especially for the purpose of protecting their personal assets from the business’s liability. This separation also helps to simplify tax situations, which are usually more complex for businesses than individuals.