Freelance writing is a growing industry. According to the Bureau of Labor Statistics, this job niche is expected to grow 4% through 2032, which is at an average rate when compared to other types of jobs. While freelance writers are most often independent contractors, like any other type of occupation, they need to pay taxes on their income.
This means they need to share a tax identification number with anyone whom they supply their writing services. Traditionally, writers have provided their Social Security number (SSN) to the companies or clients they work for, which could be one or a great many entities. However, there are numerous benefits to obtaining an employer identification number (EIN) versus an SSN.
What Exactly is an EIN?
An EIN is a type of tax ID number utilized by businesses. A unique identifier with nine digits, EINs are assigned to a business entity. This can include independent contractors, such as freelancers, so the EIN can be used in lieu of a Social Security number. This way, the IRS can easily identify the business for tax reporting services through its EIN.
Do I Need an EIN as a Freelance Writer?
No, technically, as a freelancer, you do not need an EIN. An exception would be unless you have other people working for you. However, most freelance writers don’t usually have employees. That being the case, there are still many benefits to obtaining your EIN. Let’s take a look at the eight benefits of obtaining an EIN for your freelance writing business.
1. Better Protection from Identity Theft
Identity fraud cost American adults a whopping $43 billion in 2023. Every time an individual has to give out their Social Security number, this opens up the risk of identity theft. Unfortunately, data breaches have become a commonplace event. It is often not a question of “if” it happens but “when” as cybercriminals continue to get savvier and find new ways to exploit organizations to illicitly gain access to sensitive and private data.
Obtaining an EIN avoids the need for freelancers to consistently give out their SSN to anyone they contract with to write. Consider tax identifiers are always going to be necessary to give out for items such as W-9s, 1099s, invoices, and other essential documents. Consistently supplying an SSN puts the writer at risk because any employer could experience a data breach or, perhaps even worse, the job offer may be a scam in itself designed to steal SSNs and other personal information.
Having your EIN exposed would be bad, but that would not be as risky as your SSN being leaked. It is far safer to have an EIN to list on required documents when working with employers and clients.
2. Provides Financial Separation of Individual and the Business
Freelancers, especially those who have registered their business as a single-member LLC, also benefit from obtaining an EIN. An LLC, by design, provides certain financial and legal protections. People who blur the lines between their individual and business transactions usually run into tax-related (or other) problems, but an EIN aids in keeping both types of financial transactions separate. The bottom line is that you risk losing the protection an LLC provides without having a separation, which an EIN demonstrates.
3. A Business Tax ID Number Boosts Credibility
It is common for independent freelancers not to be taken as seriously if they aren’t “established” since they work for themselves, and it can be hard to build this type of business and a strong brand reputation. Freelance writers who supply EINs instead of SSNs when complying with tax forms can usually elevate their credibility and professionalism. Essentially, if you supply an EIN, this looks more credible because it bolsters public perceptions that you are a serious business owner.
4. Gain the Ability to Obtain a Business Bank Account
Most banks require business owners to have an EIN before they will allow the individual to open a bank account for their business. Some will allow independent owners to open an account with an SSN, but this is far less common.
Opening a separate business bank account also elevates credibility because it separates your personal and business monies. This is important because when it comes to the tax season, you can easily view your business’ income, expenses, and transactions.
5. Get Access to a Business Credit Card/Establish Credit
Once a freelance writer has completed the process of getting an EIN, they can work on building their business credit. This can start with applying for a business credit card. After the credit card application is approved, the writing business can start to establish its own credit history, which means better access to favorable business credit or loans if ever needed. It also means your personal credit is kept entirely separate, so neither credit standing will affect the other.
6. You Can Establish Retirement Investment Accounts
Once you finish getting an EIN for your writing business and receive a regular income, you can take your money to investments to plan for your financial future and gain specific tax advantages. Common accounts freelancers may open include a Solo 401(k), SEP IRA, and SIMPLE IRA. Financial institutions will often request an EIN, and for certain types of accounts, an EIN will be required before the retirement investment account can be opened.
7. Reserve the Ability to Hire Employees if Needed
Small businesses planning to have employees must obtain an EIN before they can hire anyone. Many freelancers work for themselves and do not hire anyone to help. In this case, getting an EIN isn’t necessary, but it can still be beneficial to apply for one.
Sure, you might work for yourself now, but as your writing business grows, you may eventually want or need to hire people to do administrative work, accounting, fact-checking, or even subcontract the writing itself if your business has more work than you can handle. Legally, you cannot hire employees without an EIN, so it is a good idea to be proactive and have one in place.
8. Aids in Setting Up Business Profiles with Payment Applications
As a freelance writer, you probably utilize payment applications, such as PayPal or Venmo, to provide a more seamless experience in your billing processes. You may or may not know, but the IRS requires these platforms to report total payment volumes that gross $20,000 per year and 200 payments in the same year.
Additionally, some states have a much lower earnings threshold or number of transactions that require reporting. Whatever the amount required, a 1099-K is issued by these platforms to the business, and having an EIN helps facilitate this process.
Information You Need to Obtain Your EIN
Now that you have seen all the benefits associated with obtaining an EIN, you will need to go through the process to get one. To do so, you will need the following information for your application.
- Your business’s legal name and your DBA designation (the latter, if applicable)
- Business contact information, including its phone number and address
- The date you began doing business
- Choose the option on the form relating to the reason why you are applying for an EIN
- List the individual responsible for the freelance writing business (you), along with your SSN or ITIN
- List your business structure (e.g., LLC or sole proprietorship) and its tax structure
- Proofread the entire application to ensure the information you provide is 100% correct to avoid denials or delays
Lastly, you submit your application and wait for a response if by mail or fax. Or you can apply on-line service and usually receive your EIN number the same day. Once complete and your EIN is issued, you can enjoy the above benefits of an EIN for freelance writing.
Getting an EIN is Worth the Effort for Freelance Writers
your business, initially find clients, develop your clientele, and keep your technology in good working condition. Furthermore, identity theft is a big worry since your Social Security number could end up in countless databases as writers tend to work with dozens or hundreds of clients.
Obtaining an EIN can elevate your brand reputation as a writer while avoiding the risks associated with handing out your Social Security number. If you ever need more money for your business, you can open a business credit card or obtain a small loan.
While you theoretically do not need the EIN, it can definitely be beneficial for many reasons. Not to mention, it easily helps streamline what often becomes complex tax situations, especially when it comes to revenue and business write-offs. Having the EIN simply makes it easier to comply with tax laws and keep your records organized.