What Is an Employer Identification Number (EIN)? A Practical Guide for Startups and Small Businesses

An Employer Identification Number (EIN) is a 9-digit federal tax identification number the Internal Revenue Service (IRS) assigns to identify a business (or other entity) for federal tax administration. Think of it as your company’s “tax ID” for reporting and compliance — especially once you start handling payroll, banking, or official paperwork.

An EIN is not your personal Social Security number (SSN). Using an EIN helps keep business and personal identifiers separate, and it’s commonly requested by banks, payroll providers, vendors, and platforms that need a W-9 or similar tax form on file.

• Banking: often required to open a business bank account and set up merchant services.
• Hiring & payroll: needed to run payroll and file employment tax returns.
• Operations: commonly requested on vendor onboarding forms, leases, and contractor paperwork.

This guide walks you through a quick, founder-friendly path: decide whether you need an EIN, time it correctly with entity formation, and apply the right way. If you’re also getting your company organized more broadly, see our Startup Legal Checklist.

Tip: The IRS issues EINs for free — be cautious of third-party sites charging a fee. Learn more from the IRS here: Employer identification number (IRS).

Short Answer: What an EIN Is and Why It Matters

An Employer Identification Number (EIN) is a 9-digit federal tax ID issued by the Internal Revenue Service (IRS) to identify your business for tax reporting and other official filings. It’s the business equivalent of an SSN — but it’s not your personal Social Security number, and using an EIN can help keep business administration separate from your personal identity.

In practice, an EIN shows up everywhere once you start operating like a real company. Common use cases include:

• Banking: opening a business bank account or setting up payment processing
• Hiring & payroll: running payroll, filing employment tax returns, and issuing W-2s
• Contractors & vendors: issuing 1099s and completing W-9/vendor onboarding or lease paperwork

The IRS lets eligible applicants get an EIN directly from the IRS in minutes for free via its online application (and warns to beware of paid third-party sites). You can also apply using Form SS-4 by fax or mail in situations where online isn’t available. Source: IRS Get an employer identification number.

Example: A two-founder startup forms its entity, gets an EIN, opens a bank account, then uses that EIN to set up payroll for its first hire.

Decide Whether Your Business Actually Needs an EIN

Many startups and small businesses need an EIN, but not everyone needs one on day one. The key is separating when the IRS generally requires an EIN from situations where it’s optional but still a smart move for operations and privacy.

• Typically required: if you will hire employees, operate as a partnership or corporation, or need to pay certain sales/excise taxes, the IRS generally expects you to have an EIN. (See the IRS list of common triggers: Get an employer identification number.)
• Single-member LLC nuance: a single-member LLC that’s a “disregarded entity” may use the owner’s SSN/EIN for income tax reporting, but it needs its own EIN if it has employees or certain excise tax filings — and many still obtain one for banking or state requirements. Source: IRS guidance on single-member LLCs.
• Often optional but advisable: sole proprietors (and some single-member LLCs with no employees) may not be legally required to get an EIN, but getting one can reduce how often you hand out your personal SSN on W-9s, vendor forms, and other paperwork.

Quick examples: A solo software consultant may choose an EIN to avoid sharing an SSN with clients; a one-member LLC planning to hire soon should get an EIN early; a venture-backed startup opening a bank account and setting up payroll will almost always need one.

Note: An EIN is federal. Sales tax IDs and other registrations are usually issued by your state.

Understand How an EIN Fits Into Your Formation and Hiring Timeline

For most startups, the cleanest sequence is: form the legal entity first (LLC or corporation), then apply for an EIN using the entity’s exact legal name and formation details. Doing it in this order helps you avoid EIN records that don’t match your finalized company name, address, or entity type — issues that can slow down banking, payroll setup, and tax filings.

Common milestones that trigger an EIN need:

• Opening a business bank account (most banks require an EIN for entities)
• Setting up payroll and filing employment tax returns
• Issuing W-2s and 1099s
• Signing leases or vendor/enterprise contracts that request a tax ID
• Investor onboarding (e.g., completing a W-9)
• Filing the entity’s tax return

Timing examples: (1) A Delaware C-corp planning to take outside investment typically forms, gets an EIN, then opens a bank account and turns on payroll. (2) A single-member LLC with no employees may wait, but should plan to get an EIN before banking, payroll, or other compliance needs arise.

Practical takeaway: coordinate EIN timing with your formation and counsel so you don’t accidentally create multiple EINs or end up with mismatched names/mailing addresses in IRS and bank records. For a broader formation-to-launch checklist, see our Startup Legal Checklist.

Step-by-Step: How to Apply for an EIN from the IRS

In most cases, the fastest path is the IRS’s online EIN tool. It’s free, and if approved, the IRS issues the EIN immediately online. The IRS also warns that you never have to pay a fee for an EIN. Source: IRS EIN application page.

Option 1: Apply online (recommended)

• Eligibility (high level): your principal place of business is in the U.S. or U.S. territories, and you have the responsible party’s SSN or ITIN. The tool is session-based (you can’t save and return) and times out after inactivity; you’re also limited to 1 EIN per responsible party per day. Source: IRS.
• Steps: gather your legal name (and any DBA), entity type, responsible party info, start date, business activity, and expected employees; complete the application in one sitting; then print/save the EIN confirmation letter.

Option 2: Apply by fax or mail using Form SS-4

• When to use: you can’t use the online tool or prefer paper filing.
• Where to send it: the IRS provides specific fax numbers and a Cincinnati mailing address for Form SS-4 (domestic and international). Source: IRS “Where to file Form SS-4”.

International applicants (no U.S. principal place of business)

If your principal place of business is outside the U.S., the IRS directs you to apply by phone, fax, or mail instead of using the online tool. Source: IRS.

Responsible party reminder: list the individual who ultimately controls the entity or an authorized representative. If this changes later, your advisors may recommend updating IRS records to avoid mismatches.

Example: A foreign founder forms a U.S. subsidiary, applies for the EIN under the subsidiary’s exact legal name, and uses the EIN to open a U.S. bank account and onboard payroll and tax providers.

Actionable Next Steps

• Confirm you need an EIN. Use the rules above (and the IRS guidance) to confirm whether your structure and plans (employees, partnership, corporation, excise/payroll filings) require one.
• Sequence it correctly. If you’re forming a new entity, form the LLC/corporation first, then apply for the EIN using the entity’s exact legal name, address, and entity type to avoid mismatches later.
• Gather the inputs before you start. Legal name/DBA (if any), responsible party info, entity type, formation date, principal activity, and expected employees — then apply via the IRS online tool if eligible: IRS EIN application.
• Store the EIN confirmation securely. Save/print the IRS confirmation letter and keep it with your formation docs and accounting records.
• Use it to turn on operations. Provide the EIN to your bank, payroll provider, and accountant as needed; then set up payroll and tax compliance workflows.
• Loop in advisors for edge cases. If you have foreign founders, multiple entities, planned entity conversions, or employees in multiple states, coordinate with your lawyer and tax advisor early to avoid duplicate EINs or incorrect filings.

If you’re building your broader formation checklist at the same time, start here: Promise Legal’s Startup Legal Checklist.