If you ever, sort of stumbled through tax forms or went to open a bank account, you might have noticed the letters EIN, SSN, and ITIN. At first these three number codes can feel confusing, like, not quite in your hands. They may look similar, but honestly each one is for a different reason. This little guide is here to walk you through every one in straightforward, plain language. After you finish reading, you should know which one you actually need and when.
Why These Three Numbers Often Get Confused
First and foremost, these numbers are issued to individuals and businesses by the government for tax purposes. Second, all of them consist of nine digits, which is why most people can confuse them. However, if you look at what entities have the ability to apply for these numbers, you will realize how different they are.
What Is a Social Security Number (SSN)?
SSNs are issued for individuals by the Social Security Administration. The number follows the person for the whole time of their work. This unique combination helps the employer to know the employee and pay the appropriate amount of taxes to the local IRS office.
Who Can Get an SSN
SSNs are assigned to lawfully admitted citizens and residents of the United States at the moment of birth. Moreover, those who are allowed to work in the United States by the government can apply for a number.
What an SSN Is Used For
An SSN can be used for personal identification purposes. For example, employers usually use it to indicate a worker’s status and pay employment taxes. In addition, you may use your social security number to complete a tax return every year. The number can also be used to open bank accounts and access other financial services.
What Is an ITIN?
ITIN is a taxpayer identification number issued by the IRS for individuals who do not hold an SSN, but they should file federal taxes. ITIN is the individual’s responsibility to apply for with the IRS.
Who Needs an ITIN
There are particular groups of individuals at a high risk of needing an ITIN. They consist of non-resident aliens, foreign business owners, and real estate owners and their dependents and spouses. The last group refers to the people whose SSNs are unavailable or who are not legal residents of the United States. Basically, anyone who is a foreigner and needs to submit federal taxes in the United States should consider applying for an ITIN.
What an ITIN Is Used For
An ITIN ensures that a person is able to file a tax return even without an SSN. Additionally, it may also enable a person to claim certain tax benefits by the treaty between the U.S. and their home country. However, the identification number does not authorize someone to work legally in the U.S., and it is not possible to receive social security benefits with its help.
What Is an EIN?
An EIN refers to an employee identification number, and it is different from the previous two in that it is not issued to individuals but to entities. The EIN helps to identify taxpayers who do not have a SSN. They usually apply for this number when they set up and register a company.
Who Needs an EIN
Most limited liability companies (LLCs), corporations, and partnership organizations apply for an EIN from the IRS. A single member LLC without any employees probably will not have this number as well. Nevertheless, every entity that plans to hire someone in the future should have an EIN.
What an EIN Is Used For
An EIN assists organizations to open a business bank account and submit tax documents. This number should accompany the employees’ documents for the staff to be hired in the future. Some organizations require this number when dealing with a new business partner or vendor.
Key Differences Between EIN, SSN, and ITIN
Now, as we have understood the meaning and the purpose of all the three numbers, let us analyze their differences from several points of view. First of all, the identifiers differ from each other with the owner in whose possession they stay. EIN stays with a company, while SSN and ITIN stay with individuals.
Who the Number Belongs To
SSN and ITIN are personal identifiers; thus, they both refer to one person. An EIN, on the contrary, is a business identification number; hence, it belongs to an entity, not an individual.
What the Number Is Used For
An SSN can be used for personal identification, claiming social security benefits, and employment. An ITIN, on the other hand, is used for tax filing purposes only. An EIN is a business identification number that allows a company to file its tax returns with the IRS.
Personal Use vs Business Use
To put it shortly, SSN and ITIN are individual numbers, whereas EIN is a business identification number. Furthermore, an EIN is issued to a business, meaning that it remains the same regardless of changes in leadership or partners. A sole proprietor with an LLC, for instance, may file taxes using their SSN, but most often, an EIN is a safer choice.
When You Need an SSN
You need an SSN if you want to work in the U.S. Additionally, you need this number to file your personal tax returns every year. Most banks require an SSN to open a personal account. Finally, if you were born in the U.S. or you are a legal immigrant with the right to work, you most likely have an SSN.
When You Need an ITIN
You need an ITIN if you are required to file a tax return but you do not qualify to get an SSN. For example, a foreign company owner who wants to file their taxes but does not have an SSN would need an ITIN. Similarly, a U.S. citizen’s dependent who wants to claim a tax refund may also need an ITIN. If you are unsure whether you need an ITIN or not, it is best to consult a tax professional to help you.
When You Need an EIN
If you are considering registering a company, then you will need an EIN. You will also need this number if you want to hire employees. Many small business owners get an EIN even if they do not have to because it helps them keep their business and personal finances separate. In most cases, a single member LLC must obtain an EIN to operate legally within the United States. This is because the IRS requires any company that has at least one employee to submit an EIN during registration.
Can You Have More Than One of These Numbers?
It is possible to have multiple numbers if an individual runs a business. In this case, the person possesses two types of identifiers: an SSN for personal use and an EIN for the company. If someone owns a foreign enterprise, they might have an ITIN to pay taxes in the United States and an EIN for their company. However, it is not possible to have an ITIN and an SSN at the same time because of the uniqueness of the Social Security Number.
Common Mistakes People Make
First off, many individuals confuse one number for the other. For instance, people often try to use their social security number in lieu of an EIN when registering their business. Similarly, people try to apply for an ITIN when they are actually eligible to get an SSN. These mistakes can cause unnecessary delays to the registration process. Another common mistake is failing to apply for an EIN when one is required to do so. Some people tend to ignore the EIN application just because they do not think it is necessary. A business owner may also make the mistake of thinking that an EIN applies to them when they do not qualify for one. Lastly, many individuals fail to understand that an EIN does not apply to personal tax matters. It is important to keep your personal and business finances separate.
Final Thoughts
SSN, EIN, and ITIN might seem similar because of the nine digit composition, but they differ in a lot of other aspects. SSN is an individual number; ITIN is the alternative for those who do not have an option to acquire an SSN; and EIN refers to a company’s identification number. Understanding their differences might be helpful in case of a paper or documentation issue. It is vital to know what number to apply in particular situations or consult with a tax professional if something is unclear since the subject has a lot of nuances.
FAQs:
1. Can I use my SSN instead of getting an EIN?
Sometimes yes. If you have a single member LLC with no employees, you may be able to use your SSN instead. But honestly, most owners still prefer to get an EIN because it is safer, and it keeps things cleaner.
2. Does an ITIN let me work in the United States?
No. An ITIN is strictly for taxes, meaning it’s used for tax filing. It does not act as permission for legal work in the U.S.
3. Can a non-resident get an EIN without an SSN?
Yes. Non residents can apply for an EIN by fax or phone, even if they do not have an SSN or an ITIN.
4. Can one person have an SSN, an ITIN, and an EIN?
No, an individual cannot have both an SSN and an ITIN, however they can have an SSN too, along with an EIN for a business that they own by themself. And yes, sometimes people mix these up, but that is the gist.
5. Does an EIN replace my personal tax number?
An EIN only applies to your business; it does not replace your personal tax ID number.