What is a tax ID number?
Tax ID number is a broad term that refers to a few types of identification numbers. These numbers are associated with individual people, business entities and organizations. The purpose of the identification number is so that tax collection agencies, such as the IRS, know where forms and payments are coming from. It also allows the IRS to apply tax credits, payments and debts to the right tax accounts.
What is an example of a tax ID number?
One of the most common examples of a tax ID number is the Social Security number. SSNs are used by the IRS and other organizations to track individual income tax accounts—even though these numbers are issued by the Social Security Administration and not the IRS.
Other types of tax ID numbers include:
- Employer Identification Numbers – issued to employers that may need to pay employee payroll taxes
- Individual Taxpayer Identification Numbers – issued to individuals who need to pay taxes but are not eligible for a SSN
- Preparer Taxpayer Identification Numbers – ID numbers used by professional tax preparers so the IRS knows who completed forms on someone’s behalf
What’s the difference between a tax ID number and an Employer ID Number?
An Employer Identification Number, or EIN, is one type of tax ID number. It can be provided to people or companies who employ and pay others. Some estates and trusts might also require EINs.
In most cases, an EIN is nine digits. When printed, it is often shown with two digits followed by a hyphen and the remaining seven digits: XX-XXXXXXX. This is in contrast to the normal presentation of a SSN, which looks like this: XXX-XX-XXXX.
What kinds of businesses need a tax ID number?
Whether or not a business needs an EIN depends on what it does. If you pay employees at all, you need an EIN so you can withhold taxes, make appropriate tax payments and provide employees with the W2s and other forms they need at the end of the year.
According to the IRS, you also need an EIN if you:
- Choose certain types of business organization
- File certain types of tax returns
- Withhold taxes on income that you paid to non-resident aliens
- Use certain types of tax-deferred pension plans
- Partner with organizations that might require you to have an EIN
Do you need a state tax ID if you have a federal tax ID?
Whether or not you need a state tax ID depends on the tax laws and requirements for the state in which you do business or pay employees. It’s also possible that you might need an ID for more than one state, depending on the structure of your business.
Consult with state tax agencies or a business accountant or tax lawyer to understand whether you need to apply for a state tax ID.
How do you get a tax ID number?
How you get a tax ID number depends on which one you need.
Most U.S. citizens get their SSN assigned at birth. Hospital staff or others typically provide parents with the information required to complete an application. Some noncitizens can apply for SSNs.
Others who need a federal tax ID number and can’t get an SSN can apply for an Individual Tax Identification Number (ITIN). You must complete an application in person or mail a Form W-7 with proof of identity, a tax return and foreign status documents. The IRS provides additional information on applying for this type tax ID.
To get an EIN as an employer, you can apply online via the IRS’s website. The online application asks you a series of questions via a wizard-style interface to help you apply for an EIN. Alternatively, you can complete form SS-4 and mail it in.
