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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I am a sole proprietor with a federal tax ID no. I have a customer

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I am a sole proprietor with a federal tax ID no. I have a customer who says that a sole proprietor must use there SS no. and that sole proprietor can’t have a federal tax ID no.
and refuses to pay.
Can you supply me with documentation proving that I am in conformance with federal laws?

HelloCustomer

 

A sole proprietor can have a federal tax ID number, but that is not what determines if your income must be reported on a 1099 form by your customer.

 

A federal tax ID number can be used for a number of purposes. It must be obtained if you have employees or it may simply be needed for banking purposes.

 

When you perform services for a company, the company is required to have you fill out a W-9 form. The reason for that form is to gather your identifying information, and depending on how you fill out that form, it also determines whether or not the company is required to report the payments made to you on a 1099 form at the end of the year. If you are not actually established as a formal corporation, then the customer must report any monies they paid to you if the amount exceeds $600 for the year. This is true regardless of whether or not you use your federal tax ID number or your SS number.

 

On the W-9 form, in addition to providing your name, company name, address and tax number, you also need to indicate on that form if your business is established as a sole proprietorship, corporation, partnership or LLC. If you are established as anything other than a corporation, the company must report your earnings on a 1099 if they are more than $600 for the year.

 

If you look at the instructions for the Form W-9 on page 3, it states that "if you are a sole proprietor and you have an EIN, you may enter either your SSN or EIN. However, the IRS prefers that you use your SSN."

 

So you can use your EIN on this form, but if you are operating as a sole proprietor, if your payments from this company are $600 or more for the year, they will still be required to report them on a 1099 form at the end of the year. I would suggest telling this company to refer to page 3 of the W-9 instructions where it clearly states if you are a sole proprietor with an EIN, you may use either your EIN number of your SSN.

 

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Thank youCustomer/p>

 

 



Edited by Merlo on 7/1/2010 at 3:06 PM EST
Customer: replied 6 years ago.
The EIN is my fed ID no.?

Hello againCustomer

 

Yes, that is correct. EIN stands for Employer Identification Number, so the name is XXXXX XXXXX confusing. One might think that an EIN is only used by people with employees, but that is not the case. An EIN is the same thing that is commonly referred to as a federal tax ID number and that is what you have. You can use either your EIN or your SSN on the W-9 form.

 

If this was helpful please press the Accept button. It is the only way we receive any credit for helping with these questions.

 

Thank you againCustomer/p>

 

 

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