We’re all linked to numbers—bank account numbers, social security numbers, driver’s license numbers. But one number many freelancers don’t, but should, have is an Employer Identification Number (EIN), also known as a Federal Tax ID Number.
A lot of freelancers don’t have an EIN because they think, it’s for companies with employees. But that’s not true. Even if you’re only a boss of one—that one being yourself—you can, (and you should) get an EIN.
What’s The Point of Having an EIN?
Getting an EIN, isn’t just some pointless task I’m suggesting for the sake of extending your to-do list. I’m pushing the idea because it offers personal and professional benefits.
We already face enough risk of identity theft. According to Statistic Brain, the U.S has over 12 million victims a year. Using your social security number for professional reasons can make you more vulnerable.
If you earn over $600 a year from any client, you have to fill out a W-9 form so your client can file a 1099-MISC with the IRS. When you have an EIN, you can plug that into the form instead of giving out your social security number.
Think about it. A lot of us meet and only interact with our clients via the Internet. We never see them and never talk to them. We really don’t know anything about these people and we certainly don’t know anything about the people around them. Giving out your social security number to strangers isn’t a brilliant idea, especially since there’s an alternative.
Furthermore, your clients may file their taxes on the Internet, which is an additional risk since everyone and their mama is getting hacked these days. And your clients must also send you a copy of your 1099 through the mail, piling on more riskiness if the form has your social security number.
To be clear, some criminals can steal and use tax ID numbers too. An EIN doesn’t make you immune to fraud; it helps reduce the chances.
An EIN can be a valuable business tool for other reasons, such as applying for a business license. And without those nine digits, it may be difficult to get business loans and business bank accounts. Some banks give preferential lending and savings terms to businesses, and they use EINs to help distinguish business accounts from individual accounts.
Using a tax ID number instead of your social security number also adds a professional touch. It shows clients you keep your personal and professional affairs separate and you operate like a business. It’s one of the small things that can set you apart from the amateurs.
And you may be operating solo at the moment, but think long-term. If you ever need to hire help, you’ll need an EIN. If you get it now, you’ll already have it.
How To Get An EIN
Getting a tax ID number is easy and it’s free. Go to the IRS website and the EIN Assistant will walk you through a short questionnaire. Once it’s complete, the number is assigned instantly, and you can start using it. But it takes two weeks for your EIN to become part of the IRS’ records, so if start using it before then and someone checks it, it may appear invalid.