Is a Taxpayer Number the Same as an EIN?
Discover if a taxpayer number is the same as an EIN. Learn how these IRS identification numbers differ for individuals and businesses.
Individuals and businesses often encounter various identification numbers for tax purposes. The terms “taxpayer number” and “EIN” are frequently used interchangeably, yet they represent different aspects of tax identification. This article aims to clarify these terms, explaining their purposes and when each is applicable.
Understanding Taxpayer Identification Numbers
A Taxpayer Identification Number (TIN) is a unique nine-digit number used by the Internal Revenue Service (IRS) to identify individuals and entities for tax administration purposes. The IRS requires a TIN on all returns, statements, and other tax-related documents. This broad category serves as an umbrella term for several specific identifiers.
The most common types of TINs include the Social Security Number (SSN), the Individual Taxpayer Identification Number (ITIN), and the Employer Identification Number (EIN). The Social Security Administration (SSA) issues SSNs, while the IRS issues all other types of TINs. An SSN is primarily assigned to U.S. citizens, permanent residents, and certain temporary residents for tracking earnings, employment, and Social Security benefits. It is used by individuals for their personal tax filings.
An Individual Taxpayer Identification Number (ITIN) is issued by the IRS to individuals who need a U.S. taxpayer identification number for federal tax purposes but are not eligible for an SSN. This includes certain nonresident and resident aliens, their spouses, and dependents. An ITIN is solely for tax reporting and does not grant work authorization or affect immigration status. ITINs always begin with the number 9 and are formatted similarly to SSNs.
Understanding Employer Identification Numbers
An Employer Identification Number (EIN) is a unique nine-digit number assigned by the IRS to identify businesses and other entities for federal tax purposes. This identifier is also commonly known as a Federal Tax Identification Number (FTIN). The EIN is formatted as XX-XXXXXXX, distinguishing it from an SSN’s format.
An EIN enables businesses to report taxes and fulfill various legal and financial obligations. Businesses use their EIN for activities such as hiring employees, opening business bank accounts, and applying for business licenses and permits. It is essential for many business operations, ensuring compliance with federal tax regulations.
Distinguishing Between Taxpayer Identification Numbers and Employer Identification Numbers
An EIN is a specific type of Taxpayer Identification Number. While all EINs are TINs, not all TINs are EINs.
The fundamental difference lies in their primary application and the entities they identify. A TIN is a broad category encompassing identifiers for both individuals and various entities for tax administration. In contrast, an EIN is specifically designed for businesses and other entities, such as corporations, partnerships, or organizations with employees. Individuals use an SSN for their personal tax identification.
An individual may possess both an SSN and an EIN. For instance, a person working a job would use their SSN for individual tax reporting. If that same individual also owns a business that meets certain criteria, they would obtain a separate EIN for the business’s tax obligations.
When an Employer Identification Number Is Necessary
An Employer Identification Number is necessary for a business in several scenarios. A primary reason for obtaining an EIN is if a business has employees; even if there is only one employee, an EIN is required for reporting employment taxes.
An EIN is also required for businesses operating as a corporation, partnership, or multi-member Limited Liability Company (LLC). It is also needed if a business files certain types of tax returns or withholds taxes on income paid to a non-resident alien. Other entities like trusts, estates, and non-profit organizations require an EIN.
While sole proprietors without employees can use their Social Security Number for business tax purposes, obtaining an EIN can be beneficial for opening a business bank account, building business credit, and protecting personal information.