Which of the following requires an EIN?

• A. A sole proprietorship with employees
• B. A sole proprietorship with no employees
• C. A partnership with no employees
• D. A charitable nonprofit with no employees

Answer: (A)

An Employer Identification Number is the tax ID the IRS uses to handle payroll and employment taxes. The clear trigger for needing one is having employees, because you must withhold state and federal taxes, file payroll tax forms, and issue W-2s under a separate business ID. If you’re a sole proprietor with employees, you need an EIN to separate your personal and business tax records and to manage those payroll obligations. A sole proprietor with no employees can use their own Social Security Number for tax reporting, so an EIN isn’t required in that case. Partnerships typically file as a separate entity for taxes and would usually have an EIN even if they don’t have employees, and nonprofits also obtain an EIN for tax and banking purposes, but the scenario with employees is the one that directly requires an EIN.