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Do You Need an EIN Number?

By   ·  3 minute read

Short answer:
If your business has employees, operates as a corporation or partnership, or needs to meet California payroll and reporting rules, you need an EIN. If you’re a solo owner with no employees, you might not.

Most confusion around EINs comes from generic advice that ignores how California actually enforces payroll and tax laws. The Internal Revenue Service rules are clear, but in practice, state-level compliance often forces the decision earlier than business owners expect.

Let’s break it down properly.

What Is an EIN?

An Employer Identification Number (EIN) is a federal tax ID number issued by the IRS. It identifies your business within the United States tax system for reporting, payroll, and compliance.

An EIN is a type of Taxpayer ID Number, similar in function to a social security number, but used for businesses instead of individuals.

It’s required for:

  • Filing federal tax returns and certain state tax returns
  • Running payroll and complying with California payroll rules
  • Working with payroll providers
  • Opening business bank accounts
  • Applying for financing, including SBA loans
  • Setting up retirement plans such as a solo 401(k)
  • Reporting certain tax elections

Once your business crosses specific thresholds, an EIN is no longer optional.

When an EIN Is Required

You Have Employees

Hiring even one employee triggers EIN requirements at both the federal and state level.

You’ll need an EIN to:

  • Run payroll
  • File employment tax forms
  • Withhold and remit payroll taxes
  • Register with California agencies such as the EDD

This is one of the most common points where businesses fall out of compliance by delaying setup.

Your Business Is a Corporation or Partnership

An EIN is required if your business operates as any of the following business entities:

  • C Corporation
  • S Corporation
  • Partnership
  • Multi-member LLCs

This applies even if you have no employees.

For S-Corps, an EIN is essential for payroll and owner compensation. Without it, salary reporting, payroll filings, and distributions cannot be handled correctly.

You File Certain IRS or State Tax Forms

You need an EIN if you’re required to file:

  • Employment tax filings
  • Payroll tax forms
  • Certain excise or trust-related forms

Without an EIN, these filings are often rejected outright.

You Maintain Certain Accounts or Plans

Many institutions require an EIN even when the IRS does not strictly mandate one, including:

  • Business bank accounts
  • Payroll service accounts
  • Solo 401(k) plans for owner-only businesses

This is why many solo owners encounter EIN requirements earlier than expected.

When You Might Not Need an EIN

You may not need an EIN if:

  • You operate as a sole proprietorship or single-member LLC
  • You have no employees
  • You do not file employment or excise tax forms

In this case, the IRS allows you to use your social security number. Business income is typically reported on Schedule C and flows into your personal return.

This setup is common for self-employed individuals, but it often breaks down once you:

  • Hire
  • Add partners
  • Restructure
  • Apply for financing
  • Trigger payroll or EDD scrutiny

A Note on Forms and Common Confusion

  • Form SS-5 is used to apply for a Social Security number, not an EIN.
  • EINs are issued directly by the IRS through a separate application process.

This distinction matters, especially when businesses confuse personal ID applications with business tax registration.

Why Many California Business Owners Get an EIN Anyway

Even when not strictly required, many owners apply early.

Common reasons include:

  • Opening a business bank account without exposing a personal SSN
  • Reducing identity theft risk
  • Separating personal and business activity
  • Preparing for payroll and growth
  • Expanding future tax options
  • Simplifying bookkeeping and compliance

From a practical standpoint, having an EIN usually makes filing taxes cleaner at both the federal and state level.

EINs, Payroll, and Paying Yourself in California

If you operate an S-Corp, an EIN is mandatory for payroll.

Without it:

  • Payroll cannot be processed
  • Reasonable salary rules cannot be applied
  • Owner compensation may be misclassified
  • Penalties and audits become more likely

This is one of the fastest ways California businesses fall out of compliance.

EINs, Tax-Exempt Numbers, and Nonprofits

Certain organizations apply for EINs as part of broader registration, including:

  • Charities
  • Social welfare organizations (such as 501(c)(4) entities)

These entities may later apply for tax-exempt numbers, but an EIN is still the foundational identifier used for filings and reporting. An EIN alone does not grant tax-exempt status.

EIN vs Business License: Common Confusion

An EIN is not:

  • A business license
  • A state registration
  • Proof of local compliance
  • A tax exemption

It is a federal identifier issued by the IRS.

You may still need:

  • California state tax accounts
  • EDD registrations
  • Local business licenses

Each serves a different role under federal and state tax laws.

Final Takeaway

You don’t need an EIN just because you have a business.

You need an EIN because of how your business operates and how California enforces compliance.

If you have employees, partners, multi-member LLCs, or an S-Corp structure, it’s mandatory.

If you plan to hire, seek financing, open retirement plans, or reduce payroll risk, getting an EIN early usually prevents larger issues later.

If you’re unsure whether your current setup aligns with IRS rules and California enforcement, that uncertainty is often the first sign a review is overdue.