Of all the things a new business has to collect — a name, a bank account, a structure, insurance — the Employer Identification Number is the cheapest and the quickest. The IRS describes its online tool as a way to “get an EIN directly from the IRS in minutes for free,” and if the application is approved, the number is issued online immediately.
It is also the one with the most predatory workarounds around it, which is most of why it’s worth a guide.
What an EIN is, and who needs one
An EIN is a federal tax ID for a business. The IRS says businesses and organizations generally need one to manage their taxes, and that you typically need it to hire employees, operate a partnership or corporation, pay sales and excise taxes, or change your business structure or ownership. The SBA adds that you need one “to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits.”
Sole proprietors are the grey area. The SBA notes you’re automatically a sole proprietorship if you do business without registering any other structure, and its bank-account checklist accepts either an EIN or a Social Security number for a sole proprietorship. So you may not be required to have one. But if you’d rather not put your SSN on invoices and vendor forms, an EIN is free and takes minutes. If you’re choosing between structures, our guide to LLC versus sole proprietorship covers that decision first, since your structure changes whether you need the number.
How to apply
- Check you’re eligible for the online tool. Per the IRS, your principal place of business must be in the U.S. or a U.S. territory, and you must be the responsible party or an authorized representative. If you’re applying outside the U.S., or using an existing EIN, the IRS directs you to phone, fax or mail instead.
- Have the responsible party’s SSN or ITIN ready. The IRS requires it for the online application.
- Apply during the IRS’s hours. Eastern Time, the IRS lists Monday to Friday 6:00 a.m. to 1:00 a.m., Saturday 6:00 a.m. to 9:00 p.m., and Sunday 6:00 p.m. to midnight.
- Save the confirmation. An approved application issues the EIN online immediately; keep the confirmation with your formation documents.
Each responsible party can apply for only one EIN per day, so if you’re forming more than one entity, don’t try to do both in one sitting.
The paid-site trap
Search for “get an EIN” and some of the top results are services that charge a fee for filling in the same form. The IRS warns, “Beware of websites that charge for an EIN,” and notes that you never have to pay. The SBA says the same: “Do not apply for an EIN on websites that charge a fee.” A paid service may be convenient if you want someone else to handle the paperwork, but you aren’t buying anything the IRS doesn’t give away.
What to do once you have it
- Open a business bank account. Keeping business money separate is the first step in paying yourself properly as an owner.
- Start building a credit file for the business. An EIN is the identifier lenders and bureaus attach to it; our guide to building business credit picks up here.
- Plan for your first hire. An EIN is a prerequisite for payroll, which is the moment hiring your first employee stops being hypothetical.
- Check state requirements. The SBA notes that a state tax ID depends on whether your business must pay state taxes, and that obligations differ by state and locality, so check your state’s website.
Frequently asked questions
Does it cost anything to get an EIN?
No. The IRS says its online tool gets you an EIN directly from the IRS “in minutes for free,” and warns: “Beware of websites that charge for an EIN.” The SBA repeats it: the application is free, so don’t use sites that charge a fee.
Do I need an EIN if I’m a sole proprietor?
Not always. The SBA lists an EIN “or a Social Security number, if you’re a sole proprietorship” as acceptable for opening a business bank account. But the IRS says you typically need an EIN to hire employees, pay certain excise taxes, or operate as a partnership or corporation, and many founders get one anyway to avoid handing out their SSN to clients and vendors.
Who can apply online?
Per the IRS, your principal place of business must be in the U.S. or a U.S. territory, and you must be the responsible party or an authorized representative, with the responsible party’s SSN or ITIN. If you can’t apply online, you can apply by phone, fax or mail.
How many EINs can I apply for in a day?
The IRS limits each responsible party to one EIN per day through the online tool, so if you’re setting up two entities, plan for two days.
Sources: IRS, “Get an employer identification number”; SBA, “Get federal and state tax ID numbers” and “Choose a business structure.” Check both agencies’ pages before you apply, as procedures change.