Is an Employer Identification Number (EIN) Required if the Husband and Wife are the Only Persons Working in the Business?

Whether the IRS requires a business to file taxes using an EIN depends on the way the business is structured. An EIN is mandatory for business entities that are defined as corporations, partnerships and limited liability companies.

In the past, a business that was operated jointly by a husband and wife was designated as a partnership, and an EIN would have been required. Today some couples can take advantage of new regulations that permit them to classify their business as a qualified joint venture. This greatly simplifies the tax return process by allowing both husband and wife to file under their individual social security numbers as sole proprietors.

What Are the Criteria for a Qualified Joint Venture?

A qualified joint venture is a tax classification; it does not confer any legal status. The following conditions must be met for a business to file as a qualified joint venture.

  • The husband and wife must be the sole business owners. There cannot be other employees.
  • Spouses are required to file their taxes jointly.
  • The business must not be organized as a corporation, partnership or limited liability company. (This requirement may vary somewhat depending on state laws.)
  • Both husband and wife must meet the IRS definition of “material participation” in the business.
  • The company must sell a product or service. Businesses that derive income from passive activities such as rental property are not eligible.
  • The business must not be required to file special returns for tobacco, alcohol or firearms.

What Is the Application Process?

There are no special forms to file as a qualified joint venture. When a husband and wife report their business income separately on Schedule C, the IRS will automatically recognize their business in this category.

Are There Any Draw Backs

This designation probably should not be changed from year to year, except when circumstances arise to make the business ineligible. There are other tax implications that may be important for a new business owner. It would be advisable to consult with a tax expert to determine whether a qualified joint venture is the right approach for you.

For help applying for your EIN, click here!