A sole proprietorship is defined as a company that is owned by a single individual and it doesn’t always need a tax ID. For many sole proprietorships, the owner will use their SSN or their ITIN in place of a tax ID or “federal tax identification number.” This is because the tax burden is passing through the individual themselves. But there are reasons why a sole proprietor will need a tax ID number. The most frequent issue would be that the sole proprietor might want to open a business bank account or hire employees. When a sole proprietor hires independent contractors, they can still use their social security number to do so. But when a sole proprietor actually hires employees and pays employer taxes, they need a tax ID. This is because the tax ID also doubles as a “Federal Employer Identification Number,” and it’s a number through which payroll is processed. And that’s not the only reason a sole proprietor might need an EIN, just the most common one.
A sole proprietor can start without an EIN and get one as needed, but it’s usually better for any business owner to get an EIN when they form their business. It’s a fast, easy process, and can be obtained online in under an hour.