The Purpose of Tax Identification Numbers

Tax identification numbers are used by federal, state, and local tax authorities to identify tax reporting entities such as individuals, businesses, nonprofit organizations, and trusts and to facilitate tax administration.

An individual's tax identification number is his/her social security number.

Tax Identification Numbers for Businesses

Here are the most common tax identification numbers used by businesses:

  • Federal employer identification number (EIN). You can apply online.
  • State Withholding Number
  • State Unemployment Account Number
  • Sales Tax Number (state/local)

Sole Proprietors

If you're a sole proprietor, you need an Employer Identification Number (EIN) if any of the following apply:

  • You hired or will hire employees, including household employees
    • A sole proprietor is not considered an employee of his/her own business for federal income tax purposes except for retirement plan purposes..
  • You file retirement plan tax returns
  • You file excise tax returns (e.g., alcohol, tobacco, or firearms)
  • You opened a bank account that requires an EIN for banking purposes
  • You are subject to a bankruptcy proceeding

Other reasons an EIN may be required:

  • You changed the legal character or ownership of your organization (for example, you incorporate a sole proprietorship or form a partnership)
  • You purchased a going business
  • You represent an estate that operates a business after the owner's death
  • You created a pension plan as a plan administrator
  • You created a trust and are a foreign person and need an EIN to comply with IRS withholding regulations
  • You are a withholding agent for taxes on non-wage income paid to an alien (such as an individual, a corporation, or a partnership)
  • You are a state or local agency
  • You are a federal government unit or agency
  • You administer an estate formed as a result of a person's death
  • You need an EIN to open a business bank account.