What is the Federal Tax ID?

A federal Tax Identification is something that is associated with doing business in the United States. If you have a business, you will need to have a federal tax ID in order to coordinate the withholding of taxes. Tax ID's are a necessary part of doing business and as such are an important thing to understand. Here are the basics of the federal tax ID and what it does for you as a business owner.


The federal tax ID is also known as an Employer Identification Number or EIN. An Employer Identification Number is basically like a social security number only it is designed for businesses. This makes it easier to track each business in the marketplace. It gives them a unique identification that can follow them throughout the paperwork trail that is associated with taxes. With an Employer Identification Number, the IRS can keep tabs on a particular company and distinguish between other companies of the same name or similar names. You get a unique EIN just like each person born receives a social security number.

Who Uses Them?

Although an Employer Identification Number is used for businesses, you don't have to be a major corporation to need one. In fact, many different business entities can use them. There are many business entities that use these IDs, including:

  • Sole proprietors
  • Partnerships
  • LLC's
  • Corporations
  • Trusts
  • Estates

Even non-profit organizations, such as churches and charities, use them to be identified by the government. If you are an individual, you can choose to use your social security number of EIN. It might be to your advantage to use an EIN so that your social security number is avoided and you can avoid fraud.


The format for a federal tax ID is a little bit different than what we are used to from social security numbers. While social security numbers are done in the format 000-00-0000, an EIN is done in the format of 00-0000000. By looking at the EIN number, you can tell which state that the company pays taxes in by the code that is within.


Charities must deal with EIN's and if you are donating money to one, you should be aware of them as well. Each individual branch of a charity must file for its own federal tax ID even if they are part of a bigger group. They also have to file for tax-exempt status with the IRS. If you are considering giving money to a charity you will want to check them out to see if they are legitimate. You can do so by reviewing a large database of charitable organizations and their tax-exempt status. If they are not really tax exempt, you will probably want to stay away from donating any money to them.

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