Key Takeaways

  • A Business ID helps federal and state governments identify your business for tax and legal purposes.
  • Most businesses need an EIN (Employer Identification Number), but sole proprietors may be able to use their SSN.
  • Business IDs are required for banking, tax filing, hiring employees, and obtaining licenses or permits.
  • A new EIN may be required if the business structure or ownership changes.
  • Some states issue separate state-level business IDs in addition to federal EINs.

A business identification is a number assigned to an organization, allowing the IRS and other governmental agencies to identify it as a legally organized business.

Obtaining Your Business Identification Number

When you register your business, it is critical to clearly identify the organization to the IRS by using the correct industry codes and identification numbers, as well as filing the proper documentation. If you are operating more than one business type or trade, it can be difficult to find the right code that describes it. No matter how your business is set up, you must be sure to include several pieces of information when you file the annual income tax forms. These items include:

  • Name of the business (if it is registered under a different name than yours)
  • Principal business code
  • Principal profession or business

Most business owners will also need to include the employer identification number, or EIN, on the tax forms.

The IRS requires many types of businesses to file for EINs, which is also called the tax identification number for the organization. An EIN is similar to a social security number but for a business because it is unique to each organization. The EIN is also called the taxpayer identification and the tax ID number. It is a requirement for most business entities and is used by the IRS to determine the tax obligations for each business registered in the U.S. If your business has employees, an EIN will likely be a requirement.

Businesses formed as sole proprietorships aren't always required to obtain EINs or include an identification number on their tax forms. However, the exceptions to this rule include:

  • Businesses that file excise tax forms, including those for firearms, tobacco, or alcohol.
  • Businesses that have Keogh plans.
  • Businesses with at least one employee.

If your business formation doesn't require you to obtain an EIN, you can use your own taxpayer identification number as your business identification number on tax forms. For nearly everyone, the taxpayer identification number is your social security number. When you operate more than a single sole proprietorship, it's important to remain consistent by using the same number on all forms across all of your businesses.

It is critical to use the correct number when filing forms for your business. If you go through the process of acquiring a business that meets the requirements to have an EIN, it is your responsibility as the new owner to obtain a number. Businesses formed as partnerships, corporations, and LLCs must have their own individual EINs.

Certain circumstances may also require you to obtain a new EIN, such as:

  • Changing the current business formation. This include changing from a sole proprietorship to a partnership or corporation, a partnership to a sole proprietorship or corporation, or a corporation to a sole proprietorship or partnership.
  • An estate taking over a business due to the death of the original owner.
  • An individual inheriting or purchasing an existing business and changing the business formation to a sole proprietorship.

What Is a Business ID Number?

A business identification number, often referred to as a Business ID or business tax ID, is a unique identifier assigned to a business entity by a government agency. In the U.S., the most common business ID is the Employer Identification Number (EIN), issued by the Internal Revenue Service (IRS). This number is used for tax filing, banking, and various regulatory requirements.

Businesses may also receive additional identification numbers at the state level. These could include a state tax ID, sales tax permit number, or business registration number. The specific requirements vary by state and the nature of the business.

If you're wondering “what is a business ID” used for, here are several key functions:

  • Filing federal and state taxes
  • Opening business bank accounts
  • Hiring employees
  • Applying for licenses and permits
  • Registering for state taxes such as sales or unemployment tax

Steps to Get a Business Tax ID Number

Before you start the process of obtaining an EIN for your business, it's important to figure out whether it's a requirement. If any of the following apply, you do need an EIN:

  • Your business has one or more employees.
  • Your business withholds taxes on the salaries and wages paid employees.
  • Your business is formed as a partnership or corporation.

Additionally, obtaining an EIN is required if you operate a non-profit organization, trust, or estate. If your business is formed as a sole proprietorship, an EIN typically isn't required, but you can still obtain one and use it on all required forms.

After figuring out if an EIN is required for your business, the next step is filing the application. This process can be done by mail, phone, fax, or online. Filing online is preferred by the IRS because it is faster and more efficient. You will receive your EIN as soon as you submit the online application. Navigate to the IRS website and click on the “Begin Application” button at the bottom of the EIN Assistant page.

This page times out automatically if you are inactive for 15 minutes, so make sure to have all information needed before you start. The application, IRS Form SS-4, is also available online, so you can print it out and fill in the information to have it readily accessible before you start filling it out on the website.

When You Might Need a New Business ID

Even if your business already has an EIN, certain changes to your structure or ownership could require a new number. The IRS mandates obtaining a new EIN if:

  • You incorporate or change your business structure (e.g., sole proprietorship to partnership or LLC)
  • The business is subject to a bankruptcy proceeding
  • You purchase or inherit a business and plan to run it under a different structure
  • A sole proprietor takes on a partner and begins operating as a partnership

Failing to obtain a new EIN when required can lead to complications with tax filings and government compliance.

State Business IDs and Registrations

In addition to your federal EIN, your business may need a state-level business ID. This varies depending on the state and business activities. For example:

  • A state tax ID number may be required for businesses that collect sales tax or have employees.
  • Secretary of State registration numbers are typically issued when you register your LLC or corporation.
  • Local license numbers may also serve as business identifiers in certain municipalities.

Always consult your state’s Department of Revenue or Secretary of State to determine your specific requirements.

Benefits of Having a Business ID

Holding a business ID offers numerous advantages, including:

  • Credibility: Establishes legitimacy with vendors, banks, and clients.
  • Tax compliance: Ensures accurate reporting and avoids penalties.
  • Separation of personal and business finances: Especially important for LLCs and corporations.
  • Eligibility for funding: Required for most business loan or grant applications.

For sole proprietors, applying for an EIN—while not always required—can help protect personal information by avoiding the use of your Social Security Number (SSN).

Frequently Asked Questions

1. What is a business ID used for? A business ID, such as an EIN, is used for federal tax filing, hiring employees, opening a business bank account, and applying for licenses or permits.

2. Is a business ID the same as an EIN? In most cases, yes. The EIN is the federal business ID issued by the IRS, but businesses may also have state-level IDs.

3. Do sole proprietors need a business ID? Not always. Sole proprietors without employees can use their SSN, but getting an EIN is recommended to separate personal and business activities.

4. Can I use my business ID to open a bank account? Yes. Most banks require an EIN or other official business ID to open a business checking account.

5. Do I need a new EIN if I change my business name? Not usually. A name change alone doesn’t require a new EIN, but changes in business structure or ownership might.

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