State vs Federal Taxpayer Identification Numbers: Differences and Uses

Introduction

Federal and state taxpayer identification numbers (TINs) serve the same basic purpose—uniquely identifying a taxpayer for tax administration—but they operate in different systems and are issued by different authorities. Confusing the two can cause reporting errors, backup withholding, payroll problems, and exposure of your Social Security Number. This guide explains how the systems differ, when you need both, how to apply, and practical steps I use in my CPA/CFP practice to prevent costly mistakes.

How federal TINs work (primary types and uses)

• Social Security Number (SSN): Issued by the Social Security Administration for U.S. citizens and many lawful residents and used primarily for individual income tax filing, Social Security benefits, and identity verification (see SSA.gov).
• Employer Identification Number (EIN): Issued by the IRS to businesses, estates, trusts, and certain other entities for federal tax filing, payroll reporting, and 1099 reporting. Business owners should apply online using the IRS EIN application (Form SS-4) when they hire employees, form a corporation or partnership, or need to open business bank accounts (IRS: apply for an EIN online).
• Individual Taxpayer Identification Number (ITIN): Issued by the IRS to people who must file U.S. tax returns but are not eligible for an SSN (for example, certain nonresident and resident aliens). ITINs are requested using Form W-7 and do not grant work authorization or Social Security benefits (IRS: ITIN information and Form W-7).

For deeper background on EINs and ITINs, see our internal glossary pages: Employer Identification Number (EIN) and Individual Taxpayer Identification Number (ITIN).

What states issue and why (state-level identifiers and examples)

States do not all use a single uniform TIN system. Instead, they issue account numbers tied to specific programs:

• State withholding account number (income tax withholding) — issued by a state’s department of revenue or taxation when an employer registers to withhold state income tax.
• State unemployment insurance (SUI) or employer account number — issued by the state labor or unemployment agency to manage employer unemployment insurance contributions and claims (California calls this an Employer Account Number (EAN), for example: CA EDD employer registration).
• Sales tax permit or seller’s permit number — for businesses that collect state sales taxes. This is issued by the state revenue department or tax commission.
• State business registration numbers — sometimes issued by the Secretary of State upon formation or registration to do business in the state.

Because each state manages its own programs, names and formats vary. Always check your state’s official site when registering (for example, California EDD or your state revenue department website).

When you need federal and state numbers together

Many common business activities require both federal and state identifiers:

• Hiring employees: You need an EIN for federal payroll tax filings and a state withholding account number plus a state SUI account for state payroll taxes.
• Multi-state operations: If you have payroll, sales, or nexus in more than one state you’ll generally register and receive account numbers in each state where you have obligations.
• Independent contractors and 1099 reporting: Businesses use EINs (or SSNs) to prepare 1099s for contractors. If a contractor lacks a TIN, the payer may need to apply backup withholding rules (IRS backup withholding guidance).

Case examples from practice

• Multi-state shop expansion: A retail client had an EIN and collected sales tax in State A. After opening a second store in State B they discovered they also had to register with State B’s department of revenue for a sales permit and with State B’s labor agency for unemployment insurance. Not registering promptly created delayed filings and penalty assessments.
• Nonresident taxpayer: I worked with a nonresident who needed to file a U.S. tax return but was ineligible for an SSN. We applied for an ITIN using Form W-7 and attached the federal return as required, enabling proper filing and avoiding erroneous penalties.

How to apply — step-by-step overview

Federal:

1. SSN: Individuals obtain an SSN through the Social Security Administration (SSA.gov). Existing SSNs are used on individual tax returns.
2. EIN: Businesses apply online at the IRS EIN application (or by submitting Form SS-4 by mail/fax in certain cases). The online application is the fastest method for most entities.
3. ITIN: Use IRS Form W-7 and follow the instructions; supporting documents (or certified copies) are required to prove identity and foreign status.

State:

1. Identify the correct state agency(s): department of revenue/taxation, labor/unemployment agency, and Secretary of State for business registration.
2. Register online—most states offer immediate online registration for withholding and sales accounts. Keep confirmation numbers and account credentials.
3. Maintain compliance: file returns, remit taxes, and renew permits or registrations as required by the state.

Privacy and security: protect SSNs, prefer EINs for business

A best practice I use for business clients is to avoid using an owner’s SSN when an EIN is available. An EIN reduces exposure of personally identifiable information on vendor forms and 1099s. If a vendor or bank requests a Social Security Number, offer an EIN instead when appropriate. Also:

• Limit who has access to documents containing SSNs or ITINs.
• Use secure portals or encrypted email for tax document transmission.
• Watch for IRS “TIN matching” rejections when e-filing information returns; mismatched TIN/name combos cause processing delays and possible notices.

Common mistakes and how to avoid them

• Assuming one TIN covers everything: An EIN does not automatically replace state employer or sales tax accounts. Always confirm state registration requirements before operating in a new state.
• Waiting to get an EIN: Employers must have an EIN before hiring employees. Delays can complicate payroll reporting and state registrations.
• Using an incorrect or expired TIN on information returns: Check that contractor TINs match IRS records using the TIN Matching services (available to authorized payers) to avoid backup withholding or penalties.
• Misunderstanding ITIN limits: ITIN holders cannot use the number to obtain Social Security benefits or legal work authorization; it’s only for tax reporting (IRS: ITIN FAQs).

Penalties and enforcement

Failure to obtain or use the correct federal or state ID can result in:

• Penalties for late registration or failure to withhold/remit taxes at the state or federal level.
• Backup withholding requirements for payers who file Forms 1099 without a valid TIN.
• Business license or permit suspension in some states for non-compliance.

Always respond to IRS or state notices promptly—addressing small issues early avoids larger assessments.

Checklist: What to collect when you form or expand a business

• Federal: EIN (IRS SS-4) and copies of formation documents (articles of organization/incorporation).
• State: registration confirmation, state withholding account number, state SUI/employer account number, sales tax permit or seller’s permit.
• Third-party: W-9 forms collected from contractors, with valid TINs on file.

Frequently asked questions (short answers)

• Do I need a state TIN if I only sell online? If you have sales tax nexus in a state (physical presence, economic thresholds, or marketplace facilitator rules), you must register for that state’s sales tax permit or seller’s permit.
• Can I use my SSN for my small sole proprietorship? Yes, but an EIN is recommended to separate personal and business activity and to limit SSN exposure when issuing 1099s or opening business bank accounts.
• How long does an EIN take to get? Online EINs are issued immediately in most cases; mail or fax applications take longer (IRS EIN application page).
• What if an employee gives an incorrect TIN on Form W-4 or I-9? Correct the record immediately and confirm identity or TIN with the employee. Use IRS TIN matching for contractors and follow SSA/IRS guidance for employment verification.

Authoritative sources and suggested state links

• IRS: Apply for an Employer Identification Number (EIN) and Form SS-4: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein
• IRS: Individual Taxpayer Identification Number (ITIN) and Form W-7: https://www.irs.gov/individuals/individual-taxpayer-identification-number
• IRS: Backup withholding and information reporting: https://www.irs.gov/businesses/small-businesses-self-employed/backup-withholding
• Social Security Administration (SSN information): https://www.ssa.gov
• Example state agency: California Employment Development Department (EDD) employer registration: https://edd.ca.gov/Payroll_Taxes/Employer_Account_Registration.htm

Internal resources

• Employer Identification Number (EIN): https://finhelp.io/glossary/employer-identification-number-ein/
• Individual Taxpayer Identification Number (ITIN): https://finhelp.io/glossary/individual-taxpayer-identification-number-itin/

Professional disclaimer

This article is educational and based on my experience as a CPA and CFP®. It is not individualized tax advice. State rules vary and change; confirm requirements with the IRS and the relevant state agencies or consult a tax professional for your specific situation.

Practical next steps

If you’re forming a business or expanding to another state, start by getting an EIN and checking relevant state registration pages. Keep a secure checklist of all federal and state account numbers and calendar reminders for filing deadlines to avoid penalties and protect your business and employees.