What is an EIN and Do I Need One?
If you've been researching how to start a business, you've probably seen "EIN" mentioned everywhere. It sounds official and important, but what the heck is it, and do you actually need one?
Let's cut through the confusion and figure out if an EIN should be on your business to-do list.
What is an EIN?
EIN stands for Employer Identification Number. It's also called a Federal Tax Identification Number or FEIN. Think of it as a Social Security number for your business.
Just like your SSN identifies you as an individual to the government, an EIN identifies your business to the IRS and other agencies.
What it looks like: 12-3456789 (two digits, hyphen, seven digits)
What it's for: Taxes, banking, hiring employees, and basically any official business stuff with the government.
The Confusing Name Problem
Here's where it gets weird: it's called an "Employer" Identification Number, but you don't need employees to get one. I know, I know, just chalk it up.
You can be a solo entrepreneur with no employees and still need (or want) an EIN. Don't let the name fool you.
When You're REQUIRED to Get an EIN
The IRS says you must get an EIN if you:
Have Employees
If you hire anyone, even one part-time employee, you need an EIN for payroll taxes.
Operate as a Partnership
Two or more people in business together? You need an EIN.
Have an LLC
Even single-member LLCs need an EIN in most cases.
Are a Corporation
C-Corps and S-Corps must have an EIN.
Have a Keogh Plan
This is a retirement plan for self-employed people.
Are Involved in Certain Types of Organizations
Non-profits, estates, trusts … they all need EINs.
When You MIGHT Want an EIN (Even If Not Required)
1. Business Banking
Most banks require an EIN to open a business bank account. Some will accept your SSN, but an EIN makes the process smoother and keeps your business and personal finances separate.
2. Privacy Protection
Using an EIN instead of your SSN on business documents keeps your personal information more private.
3. Professional Image
Having an EIN makes you look more legitimate to vendors, clients, and partners.
4. Future Planning
If you might hire employees or change business structures later, getting an EIN now saves hassle down the road.
5. Vendor Relationships
Some suppliers or clients require an EIN before they'll work with you.
When You DON'T Need an EIN
You can probably skip it if:
You're a sole proprietor with no employees
You don't plan to hire anyone
You're comfortable using your SSN for business purposes
You don't need a business bank account right now
You're just testing a business idea
How to Get an EIN (And It's Free!)
Here's the important part: getting an EIN from the IRS is completely free. Don't pay some website $50+ to do what you can do yourself in 10 minutes.
Option 1: Online (Fastest)
Go to IRS.gov
Search for "Apply for EIN Online"
Fill out Form SS-4 online
Get your EIN immediately
Available: Monday-Friday, 7am-10pm ET
Option 2: By Phone
Call the IRS Business & Specialty Tax Line: 1-800-829-4933
Available: Monday-Friday, 7am-7pm local time
Option 3: By Mail or Fax
Fill out Form SS-4 and mail or fax it to the IRS. This takes 4-5 weeks, so only use this method if you're not in a hurry.
What Information You'll Need
When applying for an EIN, have this info ready:
Your legal name and SSN (as the responsible party)
Your business name
Your business address
The reason you're applying (new business, hired employees, etc.)
Type of business entity (sole proprietor, LLC, etc.)
Number of employees you expect in the next 12 months
Common EIN Mistakes to Avoid
1. Paying for Something That's Free
Scammy websites charge $50-200 for EIN applications. The IRS does this for free. Don't fall for it.
2. Getting Multiple EINs for the Same Business
One business = one EIN. You don't need separate EINs for different business activities or bank accounts.
3. Not Keeping Your EIN Safe
Treat your EIN like your SSN. Don't give it out unnecessarily, and store it securely.
4. Forgetting Your EIN
Write it down somewhere safe! You'll need it for taxes, banking, and other business activities.
EIN vs. Other Business Numbers
EIN vs. State Tax ID
EIN: Federal tax identification from the IRS
State Tax ID: Required for state taxes, workers' comp, unemployment insurance
EIN vs. Business License
EIN: Tax identification number
Business License: Permission to operate your type of business in your location
EIN vs. Resale Certificate
EIN: Tax ID number
Resale Certificate: Lets you buy inventory without paying sales tax
Real-World Examples
Example 1:
Solo Freelancer Jenny does freelance graphic design as a sole proprietor. She doesn't technically need an EIN, but she gets one anyway because:
Her bank requires it for a business account
She wants to keep her SSN private on client contracts
She might hire a virtual assistant someday
Example 2:
New LLC Mike starts "Mike's Marketing LLC." He's required to get an EIN because he has an LLC, even though he's the only member.
Example 3:
Partnership Sarah and Tom open a bakery together as partners. They must get an EIN because partnerships are required to have them.
Using Your EIN
Once you have an EIN, you'll use it for:
Tax returns: Business tax filings
Banking: Opening business accounts
Payroll: If you hire employees
Vendor applications: Getting business credit or accounts
Contracts: Some clients require it
State registrations: Business licenses, sales tax permits
What If You Make a Mistake?
If you mess up your EIN application, you can't just apply for a new one. You'll need to contact the IRS to correct the information. This is why it's important to be careful when applying.
EIN and Business Structure Changes
If you change your business structure (like going from sole proprietor to LLC), you might need a new EIN. The rules are complicated, so check with the IRS or a tax professional if you're making changes.
The Bottom Line
An EIN is basically a business Social Security number that you'll probably need eventually, even if you don't need it right now.
If you have employees, a partnership, LLC, or corporation, you're required to get one. If you're a sole proprietor, you might not need one legally, but it often makes business life easier.
The best part? It's free and takes about 10 minutes to get online. So if you're on the fence, just get one. It's one of those things that's better to have and not need than to need and not have.
Just remember: always get your EIN directly from the IRS at IRS.gov. Don't pay some random website to do something you can do yourself for free. Your business budget will thank you.