hile you’re probably already familiar with social security numbers, it’s important to understand the difference between an SSN (Social Security Number) and other federal taxpayer identification numbers like EINs (Employer Identification Number) and ITINs (Individual Taxpayer Identification Number). An EIN is a distinction for business tax purposes, while an SSN and ITIN are both for individual taxpayers instead.
Depending on your circumstances, you may need to obtain an EIN or ITIN for yourself or your business. Here's a deeper look at key differences between EINs, ITINs, and SSNs, plus the relevance of each taxpayer identification number to business owners.
Overview: EIN (Employer Identification Number)
What is an EIN?
An Employer Identification Number (EIN) is a nine-digit number issued to business owners by the IRS. An EIN is used to identify a business entity – it’s often thought of as an SSN for businesses. Most businesses use EINs for tax purposes, including:
- Government agencies
- Limited liability companies (LLCs)
- Non-profit associations
- Sole proprietors
While most business types are required to have an EIN, select sole proprietors are not required to have one. Does an LLC need an EIN? While multi-member LLCs require an EIN, some single-member LLCs do not.
Benefits of an EIN as a business owner
Even if the IRS doesn't require an EIN, you and your business can benefit from having one. Some of the benefits of an EIN for your business include:
- Separating your business and personal tax returns
- Legitimizing your business in the eyes of customers and vendors
- Establish business credit
- Obtain business loans quickly
- Opening a business banking account
- Prevent identity theft
- Obtain required business licenses
- Avoid tax penalties
If you are starting a business or already own one, check to see if you're required to have an EIN. If not, analyze your situation to determine if having an EIN would benefit your business.
How to get an EIN
You can apply for an EIN by submitting IRS Form SS-4. In general, submitting your EIN application online is easier and faster, although the IRS also accepts EIN applications by fax or mail.
Apply for an EIN with Novo
While it’s possible to apply for an EIN via the IRS website, Novo also provides an efficient, free, and secure EIN application service. Simply fill out the online application, provide a signature, and click Submit. We take care of the rest!
During the application process, you'll need to provide information about yourself as a business owner, plus your business information, including:
- Business entity type
- Your full name
- Social Security Number
- Business mailing address
- Business phone number
- The date you started the company (or when it was acquired)
- Reason for applying for an EIN
- EIN/Tax ID Recipient information
Overview: ITIN (Individual Taxpayer Identification Number)
What is an ITIN?
An ITIN, or Individual Taxpayer Identification Number, is a nine-digit number issued by the IRS to individuals living in the United States that don't qualify for a Social Security Number. An ITIN is used for tax purposes for individuals to file a tax return.
Individuals who may need an ITIN include:
- Nonresident aliens who are required to file a U.S. tax return
- U.S. resident aliens who are filing a U.S. tax return
- Dependents or the spouse of a U.S. citizen/resident alien
- Dependents or the spouse of a nonresident alien visa holder
- Nonresident aliens claiming a tax treaty benefit
- Nonresident alien students, professors, or researchers filing a U.S. tax return or claiming an exception
ITINs are for tax purposes only and are not an authorization to legally work in the U.S. Having an ITIN also will not qualify you for Social Security benefits.
Benefits of an ITIN as a business owner
Having an ITIN can help you personally and professionally if you own a business. Some of the benefits of getting an ITIN (if you don't qualify for an SSN) include:
- Establish proof of residency
- Get a driver's license
- Open a business bank account
- Qualify for a mortgage
- Get a business loan
As mentioned above, having an ITIN doesn't automatically qualify you to work in the U.S. Resident and nonresident alien employees aren't eligible to be W-2 employees but can start a business as an independent contractor. As an independent contractor, you would receive 1099 statements from qualifying employers and clients instead of a W-2. An ITIN may also qualify you for certain tax benefits like tax credits.
How to get an ITIN
You can apply for an ITIN through the IRS using Form W-7. Submit the form at the same time as your federal income tax return to:
Internal Revenue Service
Austin Service Center
P.O. Box 149342
Austin, TX 78714-9342
You will also need to include proof of identity and foreign status documents with your W-7 application and tax return.
You can also apply for an ITIN in person through an IRS-authorized Certifying Acceptance Agent or at a designated IRS Taxpayer Assistance Center.
Overview: SSN (Social Security Number)
What is an SSN?
A social security number (SSN) is a nine-digit taxpayer identification number issued by the Social Security Administration (SSA) to all U.S. citizens. The SSN system dates back to 1936 as a way to track the earnings history of U.S. workers for Social Security entitlement and benefit computation purposes. Since then, social security numbers have become a universal identifier used by the government, employers, medical facilities, and various other entities.
How to get an SSN
Most U.S. citizens receive an SSN as children. Parents can apply for a social security card for their child through the Social Security Administration (SSA). You can also apply for an SSN as an adult. To apply, fill out and submit form SS-5. You'll need to provide two forms of proof of U.S. citizenship to qualify for an SSN. The SSA accepts the following documents to verify your age and identity and prove citizenship:
- U.S. birth certificate
- U.S. driver's license
- State-issued non-driver identification card
- U.S. passport
In some cases, the SSA accepts alternative forms of identification like:
- Employee identification card
- School identification card
- Health insurance card (excludes Medicare card)
- U.S. military identification card
How to use an SSN as a business owner
Only certain businesses can use a social security number for tax purposes. Sole proprietors without employees or not filing an excise or pension plan tax return can file taxes using an SSN. So can qualifying single-owner LLCs.
Since the Social Security Administration issues social security numbers to all U.S. citizens, qualified individuals can start a business and file business taxes without obtaining another taxpayer identification number.
Income taxes work differently for self-employed business owners. Unlike W-2 employees who have taxes taken out of their paycheck automatically by an employer, self-employed individuals must pay both the employee and employer portions of Social Security taxes. Your net income (minus any eligible deductions) determines the amount you owe in Social Security taxes annually.
The Takeaway: EIN vs. ITIN vs. SSN
While EINs, ITINs, and SSNs are all federal identification numbers, each serves a different purpose in the context of operating your business or managing your finances, from filing tax returns to receiving payments.
If you're a business owner or freelancer and are still filing taxes using your social security number, you should consider applying for an EIN. Not only does it help to separate your business and personal income tax returns, but an EIN can help you legitimize and grow your business.
This page is for informational purposes only and is not intended to be relied upon as legal, financial, or accounting advice. Please consult your own professional if you have any questions.