What Is the Difference Between a Tax ID and an EIN?
Navigate the world of tax identification. Understand the distinct roles of various identifiers for personal and business use, and find out which one applies to you.
The terms “Tax ID” and “EIN” are often used interchangeably, yet they refer to distinct concepts in tax administration. While an Employer Identification Number (EIN) is a specific type of tax identification, “Tax ID” is a broader designation encompassing several unique identifiers used by the Internal Revenue Service (IRS). Understanding this distinction is important for individuals and businesses to comply with federal tax regulations.
Understanding Taxpayer Identification Numbers
A Taxpayer Identification Number (TIN) is a unique nine-digit number issued by the IRS or the Social Security Administration (SSA) for tax administration purposes. These numbers are used to identify individuals and entities, ensuring proper reporting of income and tax obligations. The most common types of TINs include the Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), Employer Identification Number (EIN), and Adoption Taxpayer Identification Number (ATIN).
A Social Security Number (SSN) is issued by the SSA to U.S. citizens, permanent residents, and some temporary residents for tracking earnings and administering social security benefits. An Individual Taxpayer Identification Number (ITIN) is issued by the IRS to individuals who are required to have a U.S. taxpayer identification number but do not have, and are not eligible to obtain, an SSN. This often applies to certain nonresident and resident aliens and their spouses and dependents. An Adoption Taxpayer Identification Number (ATIN) is a temporary identification number assigned by the IRS to a child in a domestic adoption when the adopting parents cannot obtain an SSN for the child.
The Employer Identification Number (EIN)
An Employer Identification Number (EIN), also known as a Federal Tax Identification Number (FTIN), is a unique nine-digit number assigned by the IRS to identify business entities. This number is formatted as XX-XXXXXXX. Its primary purpose is to identify businesses for federal tax reporting and compliance, similar to how an SSN identifies an individual.
An EIN is generally required for various business activities. Businesses that hire employees must obtain an EIN to report employment taxes. Corporations and partnerships are also required to have an EIN, regardless of whether they have employees. Additionally, an EIN is necessary for entities that file excise tax returns or withhold taxes on income paid to a nonresident alien. Many financial institutions also require an EIN to open a business bank account or apply for business loans and credit, even if not strictly required by the IRS for tax purposes.
Distinguishing EIN from Other Tax IDs
The core difference between an EIN and other common “Tax IDs” like the Social Security Number (SSN) and Individual Taxpayer Identification Number (ITIN) lies in their primary function and the entities they identify. An EIN identifies business entities and certain other organizations like trusts and estates. In contrast, SSNs and ITINs are primarily for individuals.
An individual may possess both an SSN (or ITIN) for their personal tax obligations and an EIN if they also operate a business that requires one. For example, a sole proprietor without employees typically uses their SSN for tax filings, but if they hire an employee or change their business structure to a corporation, they would need an EIN. This distinction ensures that personal and business finances and tax reporting are kept separate.
How to Obtain an EIN
Obtaining an Employer Identification Number (EIN) from the IRS is a free service. The application process is straightforward, with several methods available. The fastest and most common method for eligible applicants is the online application via the IRS website. This typically results in immediate issuance of the EIN upon successful completion of the application.
Alternatively, applicants can obtain an EIN by faxing a completed Form SS-4, Application for Employer Identification Number. The EIN is usually returned within approximately four business days. Mailing the completed Form SS-4 is also an option, though it is the slowest method, with processing times typically around four weeks. International applicants may also apply by telephone.