A federal tax ID or taxpayer ID is a number used to identify individuals, businesses, and other legal entities for tax purposes pursuant to the Internal Revenue Code (IRC) and specific tax laws that affect different types of legal entities.
The most common type of tax ID is a Social Security Number (SSN), followed by what’s called an Employer Identification Number or EIN. If you’re planning to start a business, the latter of these two types of federal tax IDs will be relevant to you and your business.
Does Your Business Need a Tax ID?
EINs are required for most types of business entities, including partnerships and corporations, and for any business owner that has employees and needs to establish a payroll.
Federal tax IDs, including EINs, are furnished by the Internal Revenue Service (IRS) and are unique to the legal entities they identify. The IRS will use this number to identify and track any tax responsibilities the legal entity may have.
In addition to identifying your business’ tax obligations, EINs are necessary for other business objectives, including opening accounts and applying for credit in the name of the company; some states may require businesses to obtain an EIN for various permits or licenses depending on the type of business you establish and its intended business activities.
Filing for a federal tax ID number or EIN is simple. Online applications are the fastest way to obtain an EIN; an application for a federal tax ID or EIN is typically processed within 24 hours, and you can check the status of your tax ID at any time.