A tax identification number is necessary for paying federal taxes and conducting other business activities. It’s a distinct code that tells the government who you are and how to track your tax obligations. While this unique identifier goes by different names depending on your location (e.g., Employer Identification Number, or EIN, in the United States), the concept remains the same.

Tax ID numbers are used by large corporations, mom-and-pop shops, ecommerce businesses, nonprofits, and even some freelancers. A tax ID number can protect your personal information, help you secure business credit, and make it easier to hire staff or work with certain vendors.

Below, we’ll explain what a tax ID number is, who typically needs one, and how Stripe can simplify tax compliance for businesses.

What’s in this article?

• What is a tax ID number and why do you need one?
  
• Who needs a tax ID number?
  
• How can you apply for a tax ID number?
  
• What documents do you need to get a tax ID number?
  
• How long does it take to receive a tax ID number?
  
• How can Stripe help businesses manage tax compliance?
  
• What are common issues during the application process for a tax ID?
  

What is a tax ID number and why do you need one?

A tax ID number is how the government identifies your business. It tells tax authorities who you are when you pay taxes, file returns, and more. Here’s why you should obtain a tax ID.

To separate business from personal matters

If you operate as a sole proprietor, it can be tempting to use your Social Security number (SSN) or equivalent personal ID number. But doing so can blur the lines between your personal and business finances, which can lead to confusion when you do taxes or in the event of an audit.

To protect your personal data

Relying on your personal tax ID number can put your data at risk. By using a dedicated business tax ID number on invoices, vendor forms, and other paperwork, you limit how widely your personal identifier circulates.

To build your credibility

Having a tax ID number signals that you’re serious about your business. Some banks won’t allow you to open a business checking account without an EIN or local equivalent.

To comply with regulations

Hiring employees, working with contractors, and obtaining certain licenses or permits often require a tax ID number. Without one, you might face red tape or penalties.

Who needs a tax ID number?

Many types of organizations need a tax ID number, including the following.

Businesses with employees

In the US, you must get an EIN if you hire staff, and other countries have similar requirements for their local tax IDs. The US government uses this information to track payroll taxes, unemployment insurance, and other employer obligations.

Businesses that operate as separate legal entities

If you form a limited liability company (LLC), corporation, or partnership, you generally need a tax ID to demonstrate that your business is a distinct entity.

Sole proprietors who want to manage business finances separately

Even if you run a one-person operation, applying for a dedicated business tax identifier can still be a smart decision. It can protect your personal information and offer access to business-specific benefits such as lines of credit.

Nonprofits or charities

Organizations that file for tax-exempt status often need a tax ID to register with the government. This is standard procedure to verify their legitimacy.

Trusts, estates, or other specialized entities

Some nonbusiness entities are also required to have tax ID numbers. In some places, estates and trusts require their own identifiers to file taxes or manage assets.

How can you apply for a tax ID number?

The process for obtaining a tax ID is usually straightforward, depending on local rules. Certain restrictions might apply if you’re not physically located in the country where you’re filing so plan ahead if you’re running an international operation. In the US, many entrepreneurs apply for an EIN through the website of the Internal Revenue Service (IRS), which can take just a few minutes if you have the right details at hand. Here’s how the application process works in the US.

Pick your official structure

You’ll need to state what type of entity the EIN is for (e.g., LLC, partnership) and why you’re applying. If you’re unsure, speak with a legal professional or accountant to guide you through the process.

Gather the necessary details

In the US, the IRS requires the legal name of your business and any “doing business as” (DBA) names. You’ll also need to apply using your business’s mailing address and physical address, if you have one.

Submit the application

The EIN application can be completed and submitted online if your principal business is located in the US or a US territory. You can also apply by phone, mail, or fax, although these methods typically take longer.

Receive your tax ID

In the US, if you apply online and everything is in order, you’ll receive your EIN instantly. Other methods can take up to four weeks. You’ll receive a confirmation letter in the mail.

Keep your new number safe

Once you have your ID number, store it in a secure place. You’ll need to use it when you file business taxes, apply for business licenses, or submit official forms.

What documents do you need to get a tax ID number?

The exact requirements vary by country, but here’s a general list of what you will need to apply for a tax ID.

Personal ID

If you’re the responsible party, expect to provide your government-issued identifier (such as your SSN in the US). In some cases, you might need a personal taxpayer ID if you’re not a citizen or resident.

Business registration info

If you’ve registered your business name or formed a legal entity, have those documents or registration numbers at hand. They verify your company exists and confirm its structure.

Mailing address and contact details

You’ll need to specify a place where official letters can be sent. This address might be different from your primary physical location (e.g., if you have official notices sent to a registered agent at a different address).

Nature of your business

Tax authorities will want to know what your organization does, and you might need to select a category or code that reflects your primary activity. For example, if you run an online clothing store, you might select the retail or ecommerce category.

Date the business started

Some forms will also ask when your operation began or when you hired your first employee to confirm whether you’re at the right stage to apply.

Authorized signatory details

If you’re not the owner but an executive or manager authorized to apply, your details might also be required to apply.

How long does it take to receive a tax ID number?

The time to receive your ID varies widely by region and by application method. In the US, applying online can get you your EIN immediately, while filing by mail can take a few weeks. Other countries have their own timelines. Here are some examples:

• Businesses in Canada can register for a business number (BN) online and receive it immediately.

• Businesses in the United Kingdom are issued a Unique Taxpayer Reference (UTR) after they register. They typically receive it by mail within 15 days.

• Businesses in Australia can apply for an Australian Business Number (ABN) online and receive it immediately.

If you have an urgent need for a tax ID, consider online or phone options to avoid paper handling and mailing delays.

How can Stripe help businesses manage tax compliance?

Here’s how Stripe can help you manage your taxes and comply with tax law.

Automated tax calculations

Stripe Tax automatically calculates sales tax, value-added tax (VAT), and other taxes based on customers’ locations. This is particularly useful if you do business in multiple regions or countries.

Advanced reporting features

The Stripe Dashboard allows you to track sales figures, taxes, and other relevant data in real time so you can manage your taxes without searching through spreadsheets or doing manual calculations.

Integration with accounting tools

Many popular accounting platforms, such as QuickBooks and Xero, integrate with Stripe. That means every sale, fee, or refund is automatically logged, so data entry errors don’t create issues as you do taxes.

International compliance

If you conduct business abroad, you might have to follow different compliance requirements in each location. Stripe can help you pinpoint how much tax you need to charge and create separate statements that meet each country’s reporting requirements.

Data security

Stripe prioritizes security, which matters when you’re handling sensitive financial details. Stripe has the highest level of certification available in the payment industry: PCI Level 1.

What are common issues during the application process for a tax ID?

While the process of applying for a tax ID is fairly easy to work through, certain issues can arise. Here are some common mistakes to avoid.

Providing incorrect or inconsistent information

A name or address mismatch between your application and official documents can lead to an immediate rejection. Before you file, verify that your information matches what you use on other official forms.

Choosing the wrong entity type

Choosing the wrong entity type—for instance, applying as a partnership when your business is an LLC—can confuse the system and lead to rejections or long processing times. If you’re not sure which box to check, consult an accountant or business attorney.

Encountering technical issues with online forms

Technical issues, such as the website crashing or the session timing out, can slow down your application. If you’re on a government website, clear your browser’s cache or try again during off-peak hours. Keep your details ready so you can re-enter them quickly, if needed.

Failing to follow application requirements

Businesses with foreign ownership might need to apply using different documents or paper forms. Every country has different rules about how nonresidents can apply, so read the fine print and expect the process to take longer.

Applying repeatedly

If you try applying for a new ID multiple times, you might create warning signs for the issuing authority. It’s best to wait for a response or contact the authority for help to confirm whether your first attempt was successful.

Falling for scam websites

Some sites charge fees to “help” you get a tax ID. The official process is typically free, so always confirm you’re on a legitimate government page or a recognized third-party service if you’re paying for assistance.