The Internal Revenue Service requires all individuals and businesses to have federal tax IDs. Most individuals use Social Security numbers; an individual business owner may use a Social Security number as a federal business tax ID as well. Larger businesses must use an Employer Identification Number, or EIN, and some individuals may use other types of tax IDs in specific circumstances.
Federal vs. State ID
The federal government issues EINs to business entities, which it uses to keep track of businesses' tax records. Business owners must use this ID on all tax forms, including estimated tax forms as well as their official tax forms every April. States may or may not require businesses to get a state tax ID number, which gives the business permission to purchase goods for resale without paying sales tax on them. The business then collects tax from customers and pays the state on a quarterly basis.
Social Security Numbers
An individual's Social Security number is considered a federal tax ID. If a person runs a business as a sole proprietor, that individual continues to use a Social Security number as a federal tax ID and claims business income and expenses on personal tax returns. Businesses that are owned by more than one person use an EIN instead, so that the business itself is a separate entity for tax purposes.
Individual Taxpayer Identification Numbers
Individual Taxpayer Identification Numbers, or ITINs, are similar to Social Security numbers. Residents of foreign countries who do business inside the United States use ITINs on their tax returns. To qualify for an ITIN, a person must not be employed inside the United States but gains income from real estate or other business transactions within U.S. borders. ITINs differ from EINs and other federal tax IDs, which can be used to verify the right to employment.
Other Federal Tax IDs
The federal government offers several other types of tax identification numbers, all for individuals. Businesses must always use EINs. When parents are in the process of adopting a child, they may apply for an adoptive tax identification number for that child. The ATIN is a temporary Social Security number that parents can use until they can locate the child's assigned Social Security number or get a Social Security number for the child. Individual taxpayers who prepare others' taxes for pay may use a preparer's tax identification number, or PTIN, when preparing taxes for others. Tax-preparation companies must use the EIN instead of a PTIN.