You're filling out a form, and you are asked for your personal or business "tax identification number." There are actually several different numbers that can be used for tax identification purposes, and you'll need to know the differences among them so you can give the correct one.
As a business owner, you need to know the different kinds of identification that can be accepted for different business purposes.
What are the Differences Among a Tax ID, Employer ID, and ITIN?
A Taxpayer Identification Number is a generic term used by the Internal Revenue Service to designate the types of numbers that it allows to be used for tax and identification purposes.
Tax ID numbers are primarily used to track payments to individuals for federal income tax and other tax purposes, but they have also become used for a variety of identification purposes.
The three general types of taxpayer ID numbers are
- Social Security Number (SSN)
- Individual Taxpayer ID Number (ITIN)
- Employer ID Number (EIN)
The IRS also has two other special taxpayer ID numbers: the ATIN for pending adoptions, and the PTIN for tax preparers.
Social Security Number
A Social Security number (SSN) is the most common identifier for personal identification and tax purposes. Individuals must have a Social Security number to get a job and collect Social Security benefits.
SSNs are used by employers to report the annual income of employees for their income tax returns. They're used to determine Social Security and Medicare eligibility and benefit payments and to identify workers for work eligibility through the U.S. Customs and Immigration system.
Other times a Social Security Number might be requested:
- To open a bank account
- To apply for a passport
- On a federal student loan application
- To apply for Medicare and Social Security benefits
- To apply for public assistance, including unemployment benefits
- To check credit
if someone isn't eligible for a Social Security number, they may be able to apply for and receive an Individual Taxpayer ID Number (ITIN).
Individual Taxpayer ID Number (ITIN)
An ITIN is for people who aren't eligible to receive a Social Security Number or Employer ID Number. An employer can accept an ITIN from an individual for tax purposes (for filling out a W-4 form at hiring time, for example).
The IRS issues ITINs to people who need a tax identification number to process tax returns and payments.
Who might need an ITIN:
- A non-resident alien who is filing a U.S. tax return and not eligible for an SSN
- A U.S. resident alien (based on days present in the United States) filing a U.S. tax return and not eligible for an SSN
- A dependent or spouse of a U.S. citizen/resident alien
- A dependent or spouse of a non-resident alien visa holder
ITINs are for tax-reporting purposes only; the number cannot be used for identification purposes. The IRS emphasizes that the ITIN is NOT used:
- To authorize someone to work in the U.S.
- To make someone eligible for Social Security benefits, or
- To qualify a dependent for an Earned Income Tax Credit (EITC).
Dependents no longer need Social Security numbers for taxpayers to qualify for the EITC, beginning with the 2021 tax year, but taxpayers will receive a credit based on the rules for childless households. This change was implemented by the American Rescue Plan Act in March 2021.
Employer ID Numbers: Who Needs Them
An Employer ID (or EIN) is a federal tax identification number for businesses. Although it's labeled as an identifier for "employers," you don't have to have employees to need an EIN.
In addition to being used for paying business income taxes, an Employer ID is used:
- By banks, as a requirement for opening a business bank account
- For a business loan application
- By localities as an identifier for business licenses and permits
- For reporting and paying federal payroll taxes (federal income tax and FICA (Social Security/Medicare) taxes
Read more about when your business might need an EIN.
Business Types and Tax ID Numbers
A sole proprietorship commonly uses the owner's Social Security number for the tax number for the business. Since the business files and pays taxes through the owner's personal tax return, the SSN is the only Taxpayer ID Number needed.
Businesses that are registered with the IRS typically use an Employer ID number for business identity. An Employer ID number (EIN) is used by all other types of businesses, even if the business has no employees. Banks often require a new business to have an EIN before they can open a business bank account.
The single-member LLC business type is an exception. If you are the sole owner of an LLC, you may need to use your Social Security Number in some cases, and your EIN in others. In general, use your Social Security Number for most forms, but use the EIN of the business for employment tax forms.
How to Get a Tax ID Number
To get a Social Security Number, use this Social Security Administration web page on Social Security Numbers and Cards.
You can apply for an Individual Taxpayer ID Number (ITIN) by completing IRS Form W-7 and mailing it to the IRS, or you can apply in person.
To apply for an Employer ID Number (EIN), use one of these four easy application methods, including an online application.
Does My Business Need a State Tax ID Number?
If you do business in a state, including having an income, hiring employees, or selling goods or services, you will also need to get a state tax identification number for other state identification purposes, like sales taxes. This number is issued when you register with your state taxing authority.