I am working on a project for my beloved readers that has quickly spiraled out of control and is taking me much more time to complete than even I had contemplated. But one key point that I’ve learned is that as a self-employed person, you should use your Employer Identification Number, or EIN, for absolutely everything connected to your business.
This may sound obvious, so I want to explain exactly why this has turned out to be so shockingly annoying.
The IRS prefers you use your Social Security number
On form W-9, the one independent contractors and self-employed people submit to their clients, you’re asked for your “Tax Identification Number,” which is either your Social Security Number or your Employer Identification Number:
As the form helpfully explains, “However, for a resident alien, sole proprietor, or disregarded entity, see the Part I instructions on page 3.”
Turning to page 3, we see:
“However, the IRS prefers that you use your SSN.”
Why does the IRS prefer that you use your Social Security Number? In order to make your life as difficult as possible.
You cannot deposit employee withholding using a personal EFTPS account
I spent 3 hours today trying to figure out how to deposit federal tax withholding for employees until Twitter user and American hero @utahshane explained: “@FreequentFlyr You’re on a personal EFTPS login. Need to be on a business version to se 940, 941, etc.“
Since I am still boiling with rage right now, I’m going to explain how frustrating this is through gritted electronic teeth:
- EFTPS, the electronic system sole proprietors and employers are required to use to make quarterly estimated tax payments and deposit tax withheld from employees paychecks, is completely undocumented. This is the EFTPS “Help” page. This is the official IRS publication on EFTPS. This is the Payment Instruction Booklet. None of these documents explain that if you enroll as an individual you are unable to deposit taxes withheld from employee pay. None of them explain how the system actually works.
- Here is what EFTPS thinks you “Need To Know:”
- One of the things EFTPS DOESN’T think you need to know is that only certain account types can make certain kinds of tax deposits, and which account type you should enroll in.
- Finally, here are the three options you’re given when enrolling:
- Is a sole proprietor a business or an individual? On the one hand, you receive business income. On the other hand, we’ve established on IRS documents elsewhere that “the IRS prefers that you use your SSN.” If any information was provided in advance about the different account types, it would be easy to decide. Instead, you’re left to flip a coin.
I want to make clear that I did not “accidentally” or “mistakenly” set up my EFTPS account as an individual. I randomly set up my account as an individual because the IRS provides no guidance or instructions whatsoever about how you should set up your EFTPS account.
Why isn’t this easy?
Since I’m seething with rage you probably don’t want to ask me any question beginning with “of course you’re supposed to enroll as a business.” As I said above, this is one tiny corner of a larger project I’m working on for you, and it took me hours of searching IRS documents, forums, and finally begging for an answer on Twitter before I found the answer to this one tiny question.
Do we want people to start businesses or not? Do we want people to hire employees or not? If we do, this simply cannot be the way we organize the most basic government functions, like collecting and paying employment taxes!
Yes, you can pay to do this
Of course you can buy payroll software, hire a payroll firm, or sign up for an “exciting new” option like Zenefits to take care of this kind of payroll administration for you.
But what does it say about our system of market capitalism that we erect barriers to hiring that even reasonable people (with plenty of time on their hands) are unable to surmount without paying third parties to handle them?
One very strong tendency in American life I fight against is the impulse to treat starting a business as some kind of risky, complicated endeavor you should only undertake when you’re already rich and comfortable. When we say as a culture that the first thing you should do when you start a business is pay strangers to manage your payroll, we’re confirming that impulse and saying that starting a business isn’t for you or people like you.
Much, much more on this subject to come. But for now, just remember: fuck the IRS and their preferences, and use your EIN for everything connected to your business.