Figuring out the differences between a tax ID and an employer identification number (EIN) are key when it comes to filing taxes. We often hear people referring to them interchangeably, but it is important that you know how each plays a unique role in your business or nonprofit organization’s taxation portfolio. In this blog post, we’ll dig into the details of understanding when you need a tax ID versus an EIN.
Tax ID vs EIN: Key Differences and Similarities
The terms tax ID and EIN are often used interchangeably, but they are not the same.
A tax ID is a unique nine-digit number that the IRS uses to identify you. Each person and business has a tax ID. The term tax ID includes social security numbers (SSNs) and EINs.
If you’re not eligible for an SSN or EIN, you can get a generic tax ID number from the IRS.
An employer identification number is a nine-digit number issued by the IRS that identifies a business entity for tax purposes. EINs are like tax ID numbers for business entities like corporations and LLCs.
You can obtain an EIN for your business for free, and the process is relatively straightforward. Business that plan to employees will likely need to file for an EIN eventually. Without an EIN, you will have difficulty opening a business bank account and hiring employees.
No matter how large or small your business, you should file for an EIN immediately after launching your business.
A Social Security Number is a nine-digit tax ID number issued by the U.S. government to U.S. citizens, permanent residents and temporary residents.
Your SSN serves as a unique identifier for individuals in the US. You need this number to apply for government benefits and services, hire on with an employer, and much more. Financial institutions also require SSNs to validate customers’ identities.
Anyone that’s born in the US gets an SSN right away. This number stays with you for life. You can get a new one in the event of severe identity theft, but it’s a very complicated and drawn-out process.
SSNs are used to file Form 1040 (individual tax returns) at the end of the year.
Other Types of Tax ID Numbers
Tax IDs come in many flavors. Here are some other common types:
Individual Taxpayer Identification Number (ITIN)
An ITIN, or Individual Taxpayer Identification Number, is a nine-digit identification number issued by the IRS to individuals who are required to have one for federal tax reporting purposes. ITINs are primarily issued to foreign nationals and nonresident aliens for taxation and financial reporting purposes.
Unlike SSNs, ITINs don’t require certain citizenship or residency statuses.
If you have a social security number, you don’t need an ITIN. However, these tax IDs are invaluable in certain unique circumstances.
Taxpayer Identification Number for Pending U.S. Adoptions (ATIN)
ATIN stands for ‘Adoption Taxpayer Identification Number.’ It is a unique nine-digit identification number issued by the Internal Revenue Service (IRS) to adopted children.
ATINs allow adopting parents to claim their newly-adopted child as a dependent. Eventually, these children will likely receive an SSN or other number, but the ATIN provides a bridge for parents.
In some cases, someone undergoing a court-ordered name change or guardianship may receive an ATIN. They’ll use this number until they’re issued a permanent TID.
Preparer Taxpayer Identification Number (PTIN)
An PTIN, or Preparer Tax Identification Number, is a unique nine digit identification number assigned to individuals by the Internal Revenue Service (IRS). It is used exclusively by those who are hired or wish to be hired as tax preparers to comply with IRS regulations.
PTINs allow the IRS to track tax preparers for various reasons, including the filing of tax returns.
Does my Business Need an EIN?
The answer ultimately comes down to the type of business you’re running, who makes up its ownership, and how it’s structured.
If you have employees or want to open business bank accounts, then you definitely need an EIN.
However, if the business plans to stay small with no third parties involved, you might be able to skip it.
You can get an EIN for free online in less than five minutes, so you should just get one if you’re unsure.
Do I Have to Use an EIN?
Certain types of entities must use their EIN for certain tax forms. However, individuals and certain small businesses have more options.
If you have a disregarded entity, like a sole proprietorship or single-member LLC, you can use your SSN in lieu of an EIN.
However, your company will need an EIN if it plans to use business banking or hire W4 employees.
EINs can also help protect your personal identity. If you business issues 1099s to unfamiliar vendors, you should use your EIN so they can’t see your social security number.
How to Get an EIN
Getting an EIN for your business is a straightforward process that can be completed on the IRS website in less than 5 minutes. Watch out for companies that charge you for EIN assistance since they usually offer little value.
Click here to go to the IRS’s online EIN application portal now.
You will need your social security number, business name, and reason for wanting an EIN (such as opening a bank account or hiring employees). Note that the EIN application is only available during business hours, and you can only apply for one EIN each day.
Once you finish the application process, you can immediately receive your EIN confirmation letter by downloading the letter online as a PDF.
If you’ve lost your EIN, call (800) 829-4933 and select EIN from the list of options. You can contact your state’s Secretary of State website if you need a state EIN.
Tax IDs vary by purpose and who is applying for them. There are separate IDs for individuals, businesses, foreign persons, and tax preparers.
If you own a business, you will likely need an EIN at some point, although it’s wise to get an EIN even if it’s not strictly required.
If you have more questions about business taxes, we can help. Contact Tax Hack Accounting now to set up a one-on-one strategy session with one of our experienced tax pros. Click here to get started.
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