While building a legal AI company based in San Francisco, I had no plans to start a law firm. Still, friends and others in my network had long asked whether I could serve as their lawyer or provide legal services, and eventually, I decided to take on some legal and consulting work in my areas of expertise. For one of my first engagements, I was asked to submit a Form W-9.
What Is a Form W-9
A client may request a Form W-9 before paying for consulting or legal services. The form provides the client with the recipient’s legal name, business or trade name, address, federal tax classification, and taxpayer identification number, which may be a Social Security number or an Employer Identification Number (EIN). The client uses this information for required tax reporting, sometimes through a Form 1099. The recipient generally gives the completed Form W-9 to the client rather than directly to the IRS.
Why I Obtained an EIN
The word “Employer” in Employer Identification Number (EIN) can give the wrong impression. EINs are not just limited to businesses with “employees.” The IRS also assigns EINs to sole proprietors and other business entities for federal tax filing and reporting, including businesses owned and operated by a single person.
A sole proprietor with an EIN may use either a Social Security number or the EIN on Form W-9. The individual name shown on the federal tax return belongs on line 1. Any business or trade name belongs on line 2. The taxpayer identification number is then entered in Part I.
Obtaining an EIN leaves the underlying legal structure and tax treatment unchanged. It does not create a separate legal entity or provide limited liability.
Advantages of an EIN
My immediate reason for applying was control over where my Social Security number appeared. Using an EIN does not conceal my identity or the name of the business. But it does reduce the need to place a personal identifier in routine client records. After all, there is no reason to share your SSN when it’s not needed.
An EIN creates a consistent federal identifier for business administration. A sole proprietor can generally use the same EIN across multiple businesses and trade names, making recurring paperwork easier to manage.
An EIN may help with other business requirements. A bank or licensing agency may request one when opening an account or processing an application.
An EIN may also eventually become necessary after hiring employees or establishing certain retirement plans.
For me, the administrative benefit was also obvious and immediate. I like having the same basic information on every Form W-9, even if that consistency is partly a personal pet peeve. Moreover, if a client’s records were ever collected or produced in response to a subpoena, I would prefer that those forms contain an EIN as opposed to my personal SSN!
Ultimately, the application for an EIN is free, and eligible applicants can complete it through the IRS website and receive the number immediately after completion. It’s a simple process with no real downsides, so don’t forget to do it!
Primary Sources
IRS instructions for Form SS-4
Current IRS Form W-9 and instructions
This article provides general information and does not constitute legal or tax advice.
