Do Real Estate Agents Need an EIN?

Introduction

Many real estate agents find themselves overwhelmed with business and regulatory requirements AFTER receiving a real estate license. 

Things like…  bookkeeping, business licenses, the debate over LLC vs. S-Corp, and more. 

Since most agents are self-employed, they must familiarize themselves with the red tape and administrative tasks required to run a successful real estate business. 

In today’s post, I’ll answer the question, “Do real estate agents need an EIN?”

I’ll explain what it is, why you need it, and the steps to get one.

What is an EIN?

Before diving into whether real estate agents need an EIN, let’s define it. 

An EIN is short for Employer Identification Number. It’s a 9-digit number assigned to businesses and used by the IRS for tax purposes. 

It’s also known as a business tax ID, TIN, or TID. However, EIN is the most commonly used abbreviation. 

Even though “Employer” is in the name, you don’t have to have employees to get an EIN.

Even though you can get away with NOT having an EIN, I will explain why you probably want one anyways. 

Just Getting Started? Why get an EIN as a Sole Proprietor

Many new real estate agents (and some not-so-new) operate their business as a sole proprietorship. This just means no LLC, no S-Corp, and no separate legal entity.

You’ll file your taxes on your personal return using Schedule C. 

All of the business liability falls on the individual owner. If the business goes belly up, creditors can come after personal assets in addition to business assets.  

In most cases, sole proprietors use their Social Security Number (SSN) for tax purposes.

However, it’s wise to request an EIN anyway to protect the privacy of your Social Security Number when it comes time to receive your brokerage 1099. It’s also useful for opening a business-only bank account, which I recommend regardless of entity choice. 

Sole proprietors can apply online for an EIN at IRS.gov

Once you receive the letter, save it and print a backup as you’ll only get a copy ONCE.

You’ll update your W9 on file with your employing brokerage with the new EIN instead of your SSN.

When is an EIN Necessary for Real Estate Agents?

Hiring Employees

If you decide to expand your real estate business by hiring employees, you need an EIN. 

You’ll have payroll and employment tax obligations that require it!

Forming an LLC or Corporation

If you choose to structure your real estate business as an LLC or corporation for legal protection and liability purposes, you’ll need an EIN. 

These businesses are separate from their owners, and an EIN is necessary to identify the business for tax reasons.

Opening a Business Bank Account

Many banks require an EIN to open a business bank account. 

Separating your personal and business finances is vital to your success and is required if you have a business setup other than a sole proprietorship. 

Retirement Plans

If you plan to set up a retirement plan, such as a SEP, Simple, or Solo 401(k), an EIN may be required to establish and manage these accounts.

Do real estate agents who work on a team need an EIN?

Real estate agents who operate as part of a team or under a brokerage may not need an EIN if their broker handles the tax responsibilities. 

However, if you are responsible for your taxes within the team or brokerage structure, an EIN may be necessary.

More than likely, you are still an independent contractor and will need an EIN for your own 1099 at the end of the year. 

Benefits of Having an EIN as a Real Estate Agent

Even if you’re not required to have an EIN, there are several benefits to obtaining one:

Look More Professional and Instill Confidence

Having an EIN can make your real estate business appear more professional and established, which can provide confidence to vendors or teammates.

No Co-Mingling: Keep Personal And Business Finances Separate

An EIN is the first step to separating your business and personal finances. Your business performance will be unclear if the two are lumped together.  

An EIN is typically required to open a business bank account, even if you are a sole proprietor. I prefer and use Relay Financial for business banking. 

You Can Set Up Your Solo 401(k) and Start Saving

While this is not intended to be individualized financial advice, many of my clients benefit from using a Solo 401(k) for their business in addition to personal IRAs to save for retirement. 

You’ll be asked to provide your EIN when setting up your business retirement plan. 

How to Apply For an EIN on the IRS Website

Getting an EIN is super easy.

Recommended Method: Apply Online

You can apply for an EIN online at IRS.gov from 7am – 10pm EST.

Follow the instructions, and SAVE the PDF letter at the end, as this is your only opportunity to download it. 

You may even want to print a backup copy just in case. 

Once you receive the EIN, update your W9 form with your broker, and update or change your bank account information. Some banks may require a new account with a new EIN. Relay Financial makes this process super easy! 

Not Recommended: Fax or Mail

You can also submit Form SS-4 by fax or mail to the IRS. 

This process can take up to four weeks, and the IRS isn’t known for speedy processing of paperwork. 

Not Recommended: Phone Application

In some cases, you can apply for an EIN over the phone by calling the IRS during business hours. 

You may have to wait on hold for hours, which is why it’s much better to use the online tool. 

Not Recommended: Third-Party Services

Some third-party service providers can assist you in obtaining an EIN for a fee.

However, using the IRS application is completely FREE so there’s no reason to use a third party. 

Not to mention, many third-party providers are SCAMS

Make sure you are on the IRS.gov website when applying online and not a third-party. 

Conclusion

Do real estate agents need an EIN? Not all of them, but getting one is highly recommended, even for sole proprietors. 

An EIN will protect your privacy on 1099s, allow you to open a separate bank account, get a tax-advantaged solo 401(k), and more. 

I recommend applying for an EIN using the IRS website only. Other methods take too long or could result in getting scammed. 

Remember, this article is not intended to be legal, tax, professional, or financial advice. 

You’ll need to consult with a business formation attorney to determine the best entity structure for your real estate business.