What are the differences between a federal and a state tax ID number?

As you start your business, one of the steps to take is setting up your tax payments. You will owe taxes to both the federal government and to the states in which you do business and have an established presence (nexus). Each type of payment requires registration and the receipt of a unique tax ID number. Instead of receiving one number for both filings, you will have a state tax ID number and a federal tax ID number. The main difference between the two is the purpose each serves.

What Is a Federal Tax Identification Number?

Establishing your business requires that you get an EIN, or employer identification number, to pay taxes to the federal government on the income you make from your business. In certain cases, only using your Social Security number is acceptable, such as if you are a sole proprietorship and do not hire employees. An EIN is also necessary to open business bank accounts and credit cards. The number does not change if your company moves to another state.

What Is an Employer State ID Number?

Running a business also requires that you register within the state you are located and obtain a separate tax ID, also known as a sales tax permit. This state ID number is not related to your EIN but is for paying sales tax to the state on the tangible goods your business provides. If you operate in or sell to other states, you will need to fill out a state tax ID form for each one to be able to collect sales tax.

How To Apply for Tax IDs

If you need help figuring out all these tax IDs, GovDocFiling is here to help you. We make applying for an identification number quick and easy so you are freed from the worries of navigating tax setup. Simply fill out our form to start the application process.