Does a small company that operates as a sole proprietorship need an employer identification number (EIN)?

A small company operating as a sole proprietorship does not necessarily need an Employer Identification Number (EIN). A sole proprietor without employees and who does not file any excise or pension plan tax returns can use their Social Security Number (SSN) as their taxpayer identification number instead of an EIN. However, there are specific circumstances under which a sole proprietor must obtain an EIN:

1. Employees: If the sole proprietor has employees, they must have an EIN.
2. Tax Returns: If the sole proprietor is required to file any of the following tax returns, they need an EIN:
   • Form 720, Quarterly Federal Excise Tax Return
   • Form 730, Monthly Tax Return for Wagers
   • Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return
   • Form 941, Employer's Quarterly Federal Tax Return
   • Form 943, Employer's Annual Federal Tax Return for Agricultural Employees
   • Form 944, Employer's Annual Federal Tax Return
   • Form 945, Annual Return of Withheld Federal Income Tax
   • Form CT1, Employer's Annual Railroad Retirement Tax Return
   • Form CT2, Employee Representative's Quarterly Railroad Retirement Tax Return
3. Pension or Excise Tax Returns: If the sole proprietor files pension or excise tax returns, they need an EIN.
4. Other Specific Situations: If the sole proprietor answers "yes" to any of the following questions, they must have an EIN:
   • Do you have employees?
   • Do you operate your business as either a corporation or partnership?
   • Do you file any of these tax returns: employment, excise, or alcohol, tobacco, and firearms?
   • Do you withhold taxes on income, other than wages, paid to a nonresident alien?
   • Do you have a Keogh plan?
   • Are you involved with any of the following types of organizations: trusts, estates, real estate mortgage investment conduits, nonprofit organizations, farmers' cooperatives, or employee retirement or health benefit plans?

Additionally, if a sole proprietor becomes the sole owner of a Limited Liability Company (LLC) that has employees or needs to file an excise or pension plan tax return, they need to get a separate EIN for the LLC.

In summary, while a sole proprietor without employees and not filing specific tax returns can use their SSN, they must obtain an EIN if they meet any of the conditions outlined above.

Sources:
Publication 1635 (2/2014)
§ 301.6109-1. Identifying numbers.
Publication 1518 (11/2012)
Publication 334 (2023)
Instructions for Form SS-4 (12/2023)