Exactly how are government (federal, state, and local) entities formed? Government entities are formed like any other legal entity: They are an organization, much like a business. And as an organization, they need a tax ID (also known as an Employer Identification Number). Government entities will still need to open business bank accounts, hire employees, and more. They do this as a tax-exempt organization.
Government entities still need to pay taxes such as payroll taxes. An Employer Identification Number is used not only when the employee is first hired, but also when taxes are paid. Government employees will receive W2s at the end of the year that has the agency’s EIN on it. The Tax ID will also be used as a general identifier for the government organization, in terms of permits, licenses, and other documents. Even though the government entity may be tax-exempt, they are still going to be required to file with the IRS.