Tax ID number, Employer ID number, and ITIN? What's the Difference?

Tax ID, Employer ID, or Individual Tax ID Number Explained

Tax Identification Numbers
Tax Identification Numbers. Credit: Hitoshi Nishimura/Getty Images

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 will need to know the difference between these tax ID numbers 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 is the Difference Between 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 which it allows to be used for tax and identification purposes. While these numbers can be used for identification purposes, they are primarily used to track payments to individuals for federal income tax and other tax purposes. 

The possibilities for types of taxpayer ID numbers include:

  • Social Security number (SSN). A social security number is the most common identifier for personal identification and tax purposes. 
  • Employer ID number. An Employer ID (or EIN, for short) 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.
  • Individual Taxpayer ID number (ITIN)

What is an Individual Taxpayer ID Number (ITIN)?

An Individual Taxpayer Identification Number (or ITIN) is nine-digit number issued by the IRS to individuals who must have an identifying number but who are not eligible for a Social Security Number or an Employer ID Number.

ITIN's are for tax reporting purposes only; they cannot be used for identification purposes. You must get a Social Security number from new employees to be used on Form W-4. An ITIN cannot be used to authorize work in the U.S. or provide eligibility for Social Security or other benefits.

Examples of individuals who might need an ITIN

  • U.S. resident alien (based on days present in the United States) filing a U.S. tax return and not eligible for a SSN
  • Dependent or spouse of a U.S. citizen/resident alien
  • Dependent or spouse of a non-resident alien visa holder.

What Taxpayer ID Does a Sole Proprietor Business Use?

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.

What Taxpayer ID Does an LLC, Partnership, or Corporation Use? 

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. You can apply for an EIN online at the IRS website.

The single-member LLC business type is an exception. If you are the sole owner of an LLC, you should use your Social Security Number, not the tax ID number (EIN) of the business. 

What Taxpayer ID Do Individuals Use?

Most individual taxpayers have a Social Security number to use for tax purposes.

But some individuals do not have the SSN; these individuals use an ITIN, or Individual Taxpayer ID Number. This number is for individuals, not businesses, and it is used for tax processing purposes for those who are not eligible for Social Security numbers. An ITIN is used by foreign nationals or immigrants or their spouses. It cannot be used to verify eligibility for work or for Social Security benefits.

Note: An an employer, you can accept an ITIN from an individual for tax purposes (for filling out a W-4 at hire, for example), but the IRS says an ITIN is not to be used for identification purposes or for benefits, like Social Security.

Does My Business Need a State Tax ID Number? 

If you do business in a state, including having income, hiring employees or selling goods or services, you will also need to get a state tax identification number for .

This number is issued when you register with your state department of revenue. 

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