INDEPENDENT CONTRACTORS CAN PREVENT ID THEFT BY USING EMPLOYEE IDENTIFICATION NUMBERS

It’s likely you’ve used your Social Security number to conduct business if you’re a sole proprietor or independent contractor. When it comes to filing taxes, applying for a business credit card, or other general business activities, sole proprietors often have to use an SSN when an alternative isn’t available.

You are at risk of identity theft when you use your SSN for business purposes. If you want to protect yourself from identity theft, consider obtaining an employer identification number (EIN) from the IRS. Remember: for more tips on how to improve the quality of your life, visit www.credithealing.org.

What is an Employer Identification Number?

Businesses are assigned nine-digit EINs by the IRS so they can easily identify taxable entities. EINs are usually required by corporations and limited liability companies (LLCs) so the IRS can identify them. Many sole proprietors, however, are able to get by without them and use a Social Security number instead.

EINs are generally required for sole proprietors if:

• Hire employees
• Open a Keogh or solo 401(k) retirement plan
• Buy or inherit a business that operates as a sole proprietorship
• Form a partnership or LLC

One-person operations without plans to engage in any of the above activities are probably not required to obtain an EIN. However, EINs also offer your identity some protection.

How EINS Can Help Prevent Identity Theft

Whenever you fill out a W-9 form for a client, you generally must provide an identifying number, such as an SSN. It is impossible for you to control what happens to your Social Security Number, how the client protects it, or who at the client’s organization has access to it when you provide it. You can commit identity theft, file fraudulent tax returns and more with your Social Security Number if it is stolen.

The SSN should be protected at all costs. EINs are useful since they do not relate to your SSN. Your EIN can be used instead of your SSN when you file tax returns, submit paperwork to clients, and more. By doing so, you can avoid disclosing your social security number to clients and other entities as much as possible.

How to Get an EIN

You can apply for an EIN online with the IRS if your principal business is in the United States or U.S. territories, and you have a valid Social Security number. Alternatively, you can fill out form SS-4 and mail it to the IRS. Once the IRS grants you an EIN, you can use it to open bank accounts, file tax returns by mail, apply for business licenses, and more.

Two weeks are required before your EIN becomes part of the permanent record, after which you can file an electronic return, make an electronic payment or pass an IRS Taxpayer Identification Number matching program.

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