The tax identification number is a number assigned by the government agency tasked with collecting taxes to every tax paying entity. The purpose of the tax identification number, or tax ID number, is to easily track the tax-related transactions of the tax payer. Whether you are a business entity or an individual, you will have a unique tax identification number assigned to you.
In most countries, a business has to file for a tax ID number before it can begin its operations. The same thing applies for a person who is entering the work force for the first time - he has to get a tax ID number before he can be employed. More so, when an employee changes employers, the new employer has to take note of the employee’s tax ID number.
For individuals living in the United States, the tax ID number may not be necessary in some cases. This is due to the fact that the tax ID number acts in the same way as a Social Security Number does. If an individual is self-employed, he may simply use the latter number for taxation purposes. However, if they person wants to account for his personal and business taxes in a separate manner, then he may apply for a tax ID number.
Having a tax ID number is crucial for a business as it supports the legitimacy of the entity. In many cases, the fact that a business cannot supply a tax ID number is a reason to think twice about carrying out transactions with it.