Whether your limited liability company (LLC) needs an Employer Identification Number (EIN) or not depends on the number of members your LLC has, the method of taxation you have chosen for your LLC, and whether your LLC will have employees.
Organization of an LLC
Someone with an ownership interest in a limited liability company is called a member. An LLC can be set up as either a single-member LLC or as a multi-member LLC. In a single-member LLC, there is only one owner (or member). This is similar to a sole proprietorship. In a multi-member LLC, there are two or more owners (or members). A member in a multi-member LLC is similar to a partner in a partnership or a shareholder in a corporation.
Taxation of an LLC
Unless a special form is filed with the Internal Revenue Service (IRS), the way an LLC is taxed depends upon whether it is a single-member or multi-member LLC.
A single-member LLC is taxed the same as a sole proprietorship. The IRS calls this “an entity disregarded as separate from its owner." The single member of the LLC reports the LLC income, and profit or loss, on Form 1040 of his or her personal income tax return, along with the appropriate Schedule C, E, or F.
A multi-member LLC is taxed the same as a partnership. The LLC itself does not pay any tax, but files a Form 1065, U.S. Return of Partnership Income, which shows the share of the LLC earnings attributable to each member. Each member then reports that share of the earnings on Form 1040 of his or her personal income tax return, along with Schedule K (1065), Partner's Share of Income, Deductions, Credits, etc.
Election of Alternative Taxation
Either a single-member or a multi-member LLC can choose to be taxed as either a C corporation or an S corporation. The choice to be taxed as a C corporation is made by filing IRS Form 8832, Entity Classification Election. The choice to be taxed as an S corporation is made by filing IRS Form 2553, Election by a Small Business Corporation.
- If C corporation status is elected, the LLC will pay taxes on its profits, then each member will pay taxes on the share of those profits he or she actually receives.
- If S corporation status is elected, the LLC itself will not be taxed, but each member will pay taxes on his or her share of the profits, regardless of whether the profits are actually distributed to the member.
LLCs and EINs
An Employer Identification Number can be viewed as the business equivalent of a Social Security number. It is used in filing tax and other forms with the federal government, and may also be used for state government filings. It is also sometimes referred to as a “Tax ID Number," or TIN.
A single-member LLC will not need an EIN if both of the following requirements are met:
- It has not elected to be taxed as a C corporation or as an S corporation; and
- It does not, or will not, have any employees.
If you have a single-member LLC that will be taxed as a sole proprietorship and you do not have any employees, you will use your personal Social Security number for any tax filings.
An EIN will be required for an LLC if any of the following apply:
- The LLC is a multi-member LLC, regardless of how it chooses to be taxed.
- The LLC is a single-member LLC and has elected to be taxed as either a C corporation or an S corporation.
- The LLC is a single-member LLC and has, or will have, employees. This applies to all single-member LLCs, regardless of how they are to be taxed—even a single-member LLC that will be taxed as a sole proprietorship will need an EIN if it has employees.
How to Obtain an EIN
An EIN will require filing Form SS-4, Application for Employer Identification Number, with the IRS. This can be done online, by fax, or by mail. Online filing will get you an EIN immediately, filing by fax will take about four days, and by mail a bit longer. See the IRS website for more information or to file online.
Your LLC will need to obtain an EIN if you answer “yes" to at least one of the following questions:
- Is your LLC a multi-member LLC?
- Have you made the election to have your single-member or multi-member LLC taxed as a C corporation or as an S corporation?
- Does, or will, your single-member or multi-member LLC have employees?
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