Learn About Tax ID Numbers and How They Work

Understanding the Different Types of Tax Identification Numbers

The Internal Revenue Service (IRS) issues several different types of tax identification numbers, each designed for specific purposes and situations. Understanding which type applies to your circumstances is an important first step in tax compliance and financial management. The federal government uses these numbers to track income, employment, and business activities across the country.

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The most common type is the Social Security Number (SSN), a nine-digit identifier issued by the Social Security Administration. This number has been issued to U.S. citizens, permanent residents, and temporary workers since 1936. Today, the vast majority of Americans have an SSN, which serves as the primary tax identification number for individuals. The SSN is used to report wages, self-employment income, and investment earnings. When you work as an employee, your employer uses your SSN to file W-2 forms and report payroll taxes to the IRS.

The Employer Identification Number (EIN), also known as a Federal Tax ID Number, is a nine-digit number assigned to businesses, corporations, partnerships, and certain other entities. The IRS issues approximately 2 million new EINs each year to businesses that are forming or restructuring. An EIN is required if you operate a business as a corporation, partnership, or S corporation, or if you have employees. Many sole proprietorships and self-employed individuals also obtain an EIN, even though they can use their Social Security Number on certain tax documents. The structure of an EIN is similar to an SSN but serves a different purpose—it identifies your business entity rather than you as an individual.

Individual Taxpayer Identification Numbers (ITINs) are assigned to individuals who are not eligible for Social Security Numbers but need to file tax returns or claim tax benefits. The IRS has issued more than 16 million ITINs since the program began in 1996. ITINs are commonly used by foreign nationals, non-resident aliens, and certain dependents who lack a Social Security Number. These numbers follow a specific format: a nine-digit number that begins with the number 9 and has a specific pattern in the middle digits.

Another type is the Adoption Taxpayer Identification Number (ATIN), which is a temporary nine-digit number used for children in the adoption process who do not yet have a Social Security Number. Parents can use an ATIN to file their tax return and claim the child as a dependent or claim adoption-related tax benefits while waiting for the child's permanent Social Security Number to be issued.

Practical Takeaway: If you work as an employee, you likely have an SSN and do not need another type of tax ID. If you own a business with employees or operate as a corporation or partnership, you will need an EIN. If you are not eligible for an SSN but need to file taxes or work in the United States, an ITIN may be what you need. Identifying which type matches your situation helps you understand what number to provide to employers, financial institutions, and the IRS.

Situations Where You May Need a Tax Identification Number

Tax identification numbers are required in many common business and financial situations. The IRS and employers use these numbers to track income and ensure proper tax reporting. Understanding when a tax ID is necessary helps you stay compliant with federal requirements and avoid penalties.

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The most straightforward situation is employment. If you work as an employee for a company or organization, your employer is required by law to report your income and withhold taxes. Your employer uses your Social Security Number to file Form W-2, which reports your wages and tax withholdings to the IRS. This W-2 becomes a critical part of your annual tax return. Without an SSN, you cannot be hired as a traditional employee in the United States. In 2023, employers filed over 150 million W-2 forms with the IRS, each one requiring an SSN or ITIN.

Operating any kind of business structure typically requires a tax ID. If you establish a business as a corporation or LLC, the IRS requires an EIN. Similarly, if you start a partnership, the partnership must have an EIN for tax reporting purposes. Even sole proprietors—people who operate a business in their own name—often find it beneficial to obtain an EIN, though sole proprietors can alternatively use their Social Security Number for certain tax purposes. However, using an EIN instead of your personal SSN provides better privacy protection and separation between your personal and business finances.

Hiring employees is another situation that requires an EIN. Once you bring on even one paid employee, federal law requires you to have an EIN. You will need this number to file employment tax returns, including Form 941 (quarterly payroll tax returns) and Form 940 (annual unemployment tax returns). The IRS processes millions of these employment tax returns each year from businesses of all sizes.

Opening a business bank account often requires a tax identification number. Most banks ask for an EIN when you open a business account, even if you are a sole proprietor. Some banks will accept an SSN, but providing an EIN is standard practice. Separating your business finances from personal finances becomes much easier and more professional with a dedicated business bank account, which strengthens record-keeping for tax purposes.

Certain financial activities trigger the need for a tax ID. If you form an estate, trust, or other entity to manage assets or inheritance, the IRS assigns an Employer Identification Number to track the entity's income and tax obligations. If you are a non-resident alien working or doing business in the United States, you need an ITIN. If you have a dependent child born during the tax year and do not yet have a Social Security Number for them, you may use an ATIN temporarily while waiting for the SSN to be issued.

Obtaining a business loan or business line of credit often requires proof of a tax ID number. Lenders want to verify that your business is properly registered and has appropriate identification for tax purposes. Additionally, if you hire independent contractors, you may need to report their payments to the IRS using their tax ID numbers on Form 1099-NEC or Form 1099-MISC.

Practical Takeaway: Review your current business structure and activities. If you own a business with employees, plan to hire employees, have formed a business entity such as an LLC or corporation, need a business bank account, or manage a trust or estate, obtaining a tax ID number is likely necessary. Even if not legally required in your specific situation, having a tax ID provides benefits such as privacy protection, cleaner financial separation, and professional credibility.

How to Request a Tax Identification Number from the IRS

The process for requesting a tax identification number from the IRS varies depending on which type of number you need, but the basic steps are generally straightforward. The IRS has streamlined many of these processes over the past decade to accommodate the growing number of small businesses and self-employed individuals in the United States.

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For individuals seeking an EIN (Employer Identification Number), the most common route is to use Form SS-4, which is the "Application for Employer Identification Number." This form is available on the IRS website and can be filed in several ways. The fastest method is to file online through the IRS's online EIN application system, which is available 24/7. The online system provides an EIN immediately upon successful submission, allowing you to begin using the number right away. Many businesses use this method because it eliminates waiting time and provides instant confirmation.

Alternatively, you can submit Form SS-4 by mail or fax. If you mail the form, the IRS typically processes it and mails you an EIN within four weeks. If you fax the form, response time is usually about one week. The IRS fax number and mailing address are found on the form itself and on the official IRS website. When submitting by any method, you will need to provide information about your business, including the business name, business type, principal business activity, and the reason you are requesting an EIN.

The online EIN application system requires you to provide similar information: details about the applicant (the person in charge of the business), the business structure, the business location, and the business purpose. You will need to validate your identity, which the IRS does through information-matching with Social Security Administration records. For businesses where the applicant cannot pass identity verification, other filing methods such as mail or phone are available. The IRS telephone EIN line accepts applications, though phone lines are busier during tax season.

For individuals needing an ITIN (Individual Taxpayer Identification Number), the process is different and typically requires more documentation. You submit Form W-7, "Application for