Theo had built the product, closed the seed round, and signed his first employee's offer letter. Then he opened the payroll setup screen and stalled on the very first field: Tax ID. He wasn't sure whether it wanted his Social Security Number, some number the bank had mentioned, or something he hadn't gotten yet. He'd seen EIN, TIN, and ITIN thrown around in the same paragraph on three different websites.
A tax ID is any number used to identify a person or business to a tax authority. For your company, the one that matters most is the Employer Identification Number (EIN), a nine-digit number the IRS assigns to your business. But the EIN is only the federal piece. The day you start hiring, you also pick up state tax IDs, and you collect new ones every time you hire in a new state. That second part is the one that ambushed Theo.
What is a tax ID?
A Taxpayer Identification Number (TIN) is the umbrella term for any identifying number used for U.S. tax purposes, assigned by either the IRS or the Social Security Administration (SSA).
A TIN is a category, not a single number. So when a form or a vendor asks for your "tax ID," the correct answer depends entirely on who's asking and why. The bank opening Theo's business account wanted the company's EIN. A client who later paid one of his contractors wanted whatever number that contractor files taxes under.
The four numbers you'll run into
Almost every situation a growing company hits comes down to four IDs. Here's how they line up.
Tax ID | Who it's for | Issued by | Format | Primary use |
EIN (Employer Identification Number) | Businesses, trusts, estates | IRS | XX-XXXXXXX (9 digits) | Your company's federal tax ID: hiring, payroll, filings, bank accounts |
SSN (Social Security Number) | U.S. citizens and authorized workers | SSA | XXX-XX-XXXX (9 digits) | An individual's federal tax ID and work authorization |
ITIN (Individual Taxpayer Identification Number) | Individuals who can't get an SSN but must file U.S. taxes | IRS | 9XX-XX-XXXX (starts with 9) | Individual tax filing for those ineligible for an SSN |
State tax ID | Employers with workers or nexus in a state | State revenue and workforce agencies | Varies by state | State income tax withholding and unemployment insurance |
The EIN is the one Theo needed for that payroll field. It's the unique nine-digit number the IRS assigns to a business for identification and employment tax reporting. You'll also see it called a FEIN or Federal Tax Identification Number. You generally need one to hire employees, operate as a partnership or corporation, file business returns, and open a business bank account.
The other two federal numbers are individual. The SSN is the individual equivalent of an EIN, issued by the SSA to citizens and authorized workers, and it's what W-2 employees hand over at onboarding. The ITIN fills the gap for people who owe U.S. taxes but can't get an SSN, such as certain nonresident owners or foreign nationals; it always starts with a 9 and is applied for on IRS Form W-7.
Getting the EIN
Theo's first real relief came from discovering how simple the EIN itself is. It's free, and it comes directly from the IRS. Any site charging a fee to "get your EIN" is selling something the government hands out for nothing.
A few things he learned by doing it:
- Form the entity first. Because he was setting up an LLC, he had to register with his secretary of state before applying, or the IRS would have delayed the application.
- Name a responsible party. The application asks for a "responsible party," the individual who controls the business and its funds. It has to be a person, not another company, and that person needs a valid SSN or ITIN.
- One a day. The IRS issues only one EIN per responsible party per day, which matters if you're ever spinning up multiple entities.
- Apply online for instant issuance. The IRS online EIN Assistant gave Theo his number on the spot. It has to be finished in one session and is only open during posted hours; founders whose principal place of business is outside the U.S. apply by phone, fax, or mail instead.
State tax IDs multiply as you hire
Four months on, Theo hired a second engineer, this one remote, living two states over. He went to run her first payroll and hit a wall. Before he could legally pay her, he had to register with her state, and not with one agency but two.
State payroll obligations are triggered by nexus, meaning a sufficient connection between your business and a state, and having an employee perform work there is usually enough to create it. Even one employee can do it. And for remote workers, the obligation generally lands in the employee's work state, not your headquarters. Theo's company was based in one state, but his new engineer's home state was where the new obligations appeared.
In most states, registering means opening two separate accounts:
- A state income tax withholding account, run by the state's department of revenue or taxation.
- A state unemployment insurance (SUI) account, run by a separate state workforce or labor agency.
These are almost always distinct registrations, with separate portals, separate account numbers, and often separate processing timelines. Some states pile a local or city payroll tax account on top. And even states with no personal income tax still require registration for other programs, which is where Theo's assumption that "no income tax means nothing to do" would have burned him.
Take Washington. It has no state income tax withholding, so there's no withholding account to open. But a new employer there still registers with the Department of Revenue for a business license and a Unified Business Identifier, and with the Employment Security Department for unemployment insurance and related state programs. "No income tax" is not the same as "no registration."
Every new state is a small registration project with its own agencies, account numbers, and lead times. The expensive mistake is usually starting registration too late, discovering the gap during the first payroll run instead of before it. He started treating each new-state hire as a checklist he cleared ahead of the start date, not a surprise he cleaned up afterward.
The first hire abroad
A year in, Theo wanted to hire a designer in Portugal. He assumed it would be another registration form. Hiring abroad turned out to be a different problem entirely.
Once you hire outside the U.S., the tax ID picture changes entirely. Other countries run their own taxpayer systems, often built around a local business tax number or VAT registration that has nothing to do with your U.S. EIN. To employ someone in another country the traditional way, you generally have to establish a legal entity there and register with local tax and social authorities, which can take months and creates ongoing obligations. For a single designer, that's an absurd amount of overhead.
The common alternative is an Employer of Record (EOR): a provider that already holds the in-country entity and registrations and formally employs the worker on your behalf. That let Theo hire his designer compliantly without standing up his own Portuguese entity or obtaining a foreign tax ID first, the difference between hiring in weeks versus quarters.
See how Niural handles payroll.
See related articles:
Unified Payroll vs. Integrated Payroll
Top 8 Payroll Problems
How to Choose a Global Payroll Provider
Frequently Asked Questions
What is a tax ID number?
A tax ID number is any number used to identify a person or business to a tax authority. In the U.S., "tax ID" usually refers to a Taxpayer Identification Number (TIN), an umbrella term that includes the EIN for businesses, the SSN for individuals, and the ITIN for people ineligible for an SSN.
Is a tax ID the same as an EIN?
An EIN is one type of tax ID, specifically the federal tax ID for businesses. "Tax ID" is the broader category, so every EIN is a tax ID, but not every tax ID is an EIN.
Do I need an EIN to hire employees?
Generally, yes. You need an EIN to report wages and employment taxes to the IRS. You'll also typically need to register for state tax IDs in each state where your employees work.
How much does it cost to get an EIN?
Nothing. The IRS issues EINs for free. Avoid third-party sites that charge a fee for the application.
What's the difference between a federal EIN and a state tax ID?
Your federal EIN identifies your business to the IRS. State tax IDs, typically a withholding account and a separate unemployment insurance account, identify your business to individual state agencies and are required before you can run compliant payroll in that state. Having an EIN does not register you at the state level.
Do I need a new state tax ID for every state I hire in?
Usually, yes. Each state where you have employees generally requires its own registrations, and remote workers typically create obligations in the state where they work, not where your company is headquartered.
Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or accounting advice. Tax ID and registration requirements vary by state and change over time. Confirm your specific obligations with the relevant government agency or a qualified advisor.
