EIN: What It Means for Startups

After you incorporate your startup, the next key filing is with the IRS to request an employer identification number (EIN). (This is also known as a FEIN, or federal employer identification number.)

Your EIN is your federal tax identification. You need it to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits.

It’s free to apply for an EIN, and you should do it right after you register your business.

Your Startup Needs an EIN

If you’re operating a legitimate business, you need an EIN to do any of the basic functions below:

• Hire employees
• Open a bank account
• Apply for any type of credit
• Operate a corporation or partnership
• File tax returns
• Withhold taxes on income, other than wages

How to Apply for an EIN

The process to apply for an EIN is simple and free. The application form is called the SS-4 and can be filled out by hand or online. Click here to start your online application, which is available Monday through Friday from 7 a.m. to 10 p.m. ET. It generally takes about 10 minutes to fill out.

Below are all the questions on the SS-4 application, as well as guidance for startups.

1. Legal Name of Entity. Use the legal name of your company as it appears on your certificate of incorporation. Double-check to ensure you have the suffix and punctuation correct.
2. Trade Name of Business. If your trade name is different from your legal name, add it here. This does not apply to most startups.
3. Executor, Administrator, Trustee, “Care Of” Name. This is the name of the person who will be the point person for communication with the IRS at the company.
4. Mailing Address. Enter the company’s home office address. Identifying this address may be a bit tricky for a fully remote company. Just choose the most logical U.S. address within your founding team.
5. Street Address (if different). This question is generally not relevant for startups.
6. County and State Where Principal Business is Located. Stay consistent with question four above.
7. Responsible Party. The “responsible party” is the individual who ultimately owns or controls the entity, or who exercises ultimate effective control over the entity. The responsible party should have sufficient control in the entity that enables them, as a practical matter, to control, manage or direct financial matters. It is important to note that the responsible party must be an individual, not an entity. The responsible party must have a U.S. Social Security Number or Individual Taxpayer Number.
8. LLC. If your startup is an LLC, answer the questions about location and number of members.
9. Type of Entity. Most startups are corporations. If so, enter the state where the corporation was incorporated (not where it is headquartered). If you are a corporation, remember to fill in the applicable tax election form — either 1120 or 1120S — depending on whether you intend to be taxed as a C-Corp or an S-Corp.
10. Reason for Applying. Generally, a startup is filling out the EIN immediately after incorporation. If so, mark “Started a new business” and enter the type of business being started. For example: Software.
11. Date Business Started or Acquired. Enter the date that your certificate of incorporation was approved by the state.
12. Closing Month of Accounting Year. Your initial board consent should set the fiscal year of your company. Enter the last month (not the first) of your fiscal year. Most startups tie their fiscal year to the calendar year. In that case, the month would be December.
13. Highest Number of Employees Expected in the Next 12 Months. Make a good faith projection of the number of full-time employees you’ll have in a year. Enter that number in the “Other” category. Enter zero in “Agriculture” and “Household.”
14. Form 994. It’s highly unlikely that most startups will check this box. This question is only relevant if you plan to pay less than $5,000 in wages in a year.
15. First Date Wages or Annuities Were Paid. Make a good faith estimate of when you’ll first start paying wages to a full-time employee, and enter that date.
16. Principal Activity of Your Business. Check the box that your company fits the best in. If none of the choices make sense, check the other box and enter your principal activity. For example, “Software.”
17. Principal Line of Merchandise Sold. Describe your startup’s principal line of business in more detail. For example, if you checked the “Other” box on line 16 and entered “Software,” enter additional details such as “Financial Technology Software.”
18. Has Applicant Ever Applied for and Received an EIN. This question refers to the company, not the individual applying for the EIN on behalf of the company. So, if you’ve had previous businesses and applied before for another business, you’ll still mark “No” on this question.

In conclusion, obtaining an EIN is a crucial step for any startup that plans to hire employees, open a bank account, apply for credit or file tax returns. Applying for an EIN is a simple and free process that can be completed online with the IRS. Make sure to have the necessary information about your company and the responsible party on hand when filling out the application. By obtaining an EIN, your startup can ensure compliance with federal tax requirements and have the necessary documentation to apply for business licenses and permits.