Do You Need a Taxpayer ID Number?
Q: I had a taxpayer identification number years ago for my business as a sole proprietor. Do I have to reapply for a tax ID number this year, or can I just use the same number, or my Social Security number, after all these years?
—DRS, Brooklyn, N.Y.
A: Sole proprietors generally use their Social Security numbers as their taxpayer identification numbers. This number is used on documents such as individual income tax returns and on Schedule C of the Form 1040, where business income gets listed. If you work as a subcontractor, that same number will be used by your clients to report the fees they pay to you, says Steve Kunkel, director of Los Angeles-based CBIZ Accounting, Tax & Advisory Services.
In some cases, you would need to obtain an Employer Identification Number (EIN) to use as a taxpayer identification number. You'll use an EIN as your taxpayer ID only if you have employees, file pension tax returns or file excise tax returns, Kunkel says. You'll also have to obtain an EIN if you decide to form a different business entity, such as a corporation or limited liability company. If none of those apply, then you can use your Social Security number as your taxpayer ID. Some business owners prefer to use an EIN, even though they are not required to, just to avoid using their Social Security number, says Lisa Schwartz, with Mitchell & Smith in Camarillo, Calif.
A sole proprietor generally needs only one EIN, Schwartz says, so your previous EIN should still be valid as long as you didn't make a request to cancel it. It may be a good idea to call the Internal Revenue Service to make sure the EIN is still active and assigned to you. If your previous EIN is no longer active, you can apply for a new one at www.irs.gov/ (click on "Form SS-4" from the home page).
If you do use your Social Security number as your tax ID, you should list your name (not your company's name) when asked to complete Form W-9 (Request for Taxpayer Identification Number and Certification) for a subcontracted job. If you're using an EIN for the business, then you should provide the business name on the W-9 instead.
For more detailed information on tax rules for small businesses and sole proprietors, Kunkel recommends that small business owners look through IRS Publication 334, Tax Guide for Small Business.