Whether it’s an SSN, EIN, or ITIN, each has a unique role in the US tax system. Not sure which one you need or how they differ? You’re not alone! Let’s dive into what each number is used for and how to choose the one that fits your needs.
What is Tax Identification Number?
Tax identification number is a unique number used by the Internal Revenue Service (IRS) to track and identify taxpayers in the United States. It’s required for filing taxes, reporting income, and handling various tax-related transactions. Each person or company must have its own Tax identification number. In the US, anyone required to file taxes with the IRS must possess a valid TIN for tax reporting purposes. The two primary tax identification numbers in the U.S. are the Social Security Number (SSN) and the Employer Identification Number (EIN). Additionally, the U.S. issues an Individual Taxpayer Identification Number (ITIN) to non-residents, along with their spouses and children, if they meet particular criteria.
What is a Social Security Number?
A Social Security Number or SSN is a nine-digit number issued by the U.S. government to citizens, permanent residents, and some temporary residents for tracking earnings and ensuring proper tax reporting and access to social security benefits.
Why do I need an SSN (Social Security Number)?
A non-resident doesn’t typically need a Social Security Number (SSN) to form a U.S. LLC. However, there are certain situations where having an SSN can make business activities smoother. Here are a few reasons why a non-resident might need an SSN when operating a U.S. LLC:
1. Opening a U.S. Bank Account
While not always mandatory, some U.S. banks prefer or require an SSN for non-residents to open a business bank account. An Employer Identification Number (EIN) is usually sufficient, but some banks are stricter with SSN requirements for account holders.
If a non-resident is personally liable for income from the LLC, they may need to file personal U.S. taxes. An SSN simplifies the process of filing personal tax returns with the IRS, though an Individual Taxpayer Identification Number (ITIN) can also be used if an SSN is not available.
3. Employment Purposes
If a non-resident plans to work for the U.S. LLC (i.e. take on a role that involves active employment), an SSN might be required for legal employment, payroll, and income tax withholding purposes.
4. Access to U.S. Credit and Loans
Some non-residents seek to establish credit in the U.S. for business purposes. An SSN is often needed to apply for credit cards, business loans, or other forms of financing, as it’s used by credit agencies to track financial history.
How to get an SSN (Social Security Number)?
To apply for an SSN, you need to fill out Form SS-5 and submit proof of your identity, age, and U.S. immigration status. You can also apply by visiting a nearby Social Security Office or by calling 1-800-772-1213. Once you submit your application and your immigration documents are verified by USCIS (U.S. Citizenship and Immigration Services), expect to receive your Social Security card within about two weeks.
What is an EIN (Employer Identification Number)?
An EIN, or Employer Identification Number, is a unique 9-digit tax number given by the IRS to identify your LLC in the US. It’s required by many US banks and institutions for business operations. Once you have your EIN, you can open US business bank accounts and set up US payment gateways. The IRS uses the EIN to track how companies report their taxes.
Uses of the EIN:
- Open business bank accounts
- Easily file tax returns for your business.
- Separate your personal and business affairs by keeping your SSN private (if you have one) and exclusively using the EIN for business activities
- Acquire certain business permits, if required for your business.
How to apply for an EIN?
If you have an SSN or ITIN, you can apply for your EIN online through the IRS website. Once you complete the application and if all your information is correct, you’ll receive your EIN within minutes.
If you do not have an SSN or ITIN, you must fill out Form SS-4 and mail/fax it to the IRS. Once you submit Form SS-4, it can take anywhere between 8-11 weeks from the day of submission to receive your EIN. This timeline could increase or decrease depending on the IRS processing timelines when applying for an EIN.
What is an Individual Taxpayer Identification Number (ITIN)?
An Individual Taxpayer Identification Number (ITIN) is a nine-digit tax identification number issued by the IRS to individuals who are not eligible for a Social Security Number (SSN) but need to file U.S. tax returns. It is used solely for tax purposes.
You may wonder why you need an ITIN. Here are a few key reasons:
1. Tax Filing
An ITIN is crucial for non-citizens who must file U.S. tax returns but cannot obtain an SSN, helping them meet their IRS obligations.
2. Opening U.S. Bank Accounts
Certain banks may require an ITIN for non-residents seeking to establish bank accounts in the United States.
3. Tax Withholdings
Employers can request an ITIN for tax withholding if the worker does not qualify for an SSN.
4. Claiming Dependents
It enables individuals to claim dependents on their tax returns, which can enhance tax deduction.
How to get an ITIN?
To apply for an ITIN, you must complete Form W-7, the IRS Application for Individual Taxpayer Identification Number, and provide a tax return along with documentation like a passport or birth certificate. As stated by the IRS, if you are eligible for an ITIN and your application is complete, you should anticipate receiving a letter containing your tax identification number within roughly seven weeks. However, this may extend to 11 weeks if you apply during peak tax times or from outside the country.
Do I need an ITIN?
A foreign individual who lacks an SSN and cannot obtain one may apply for an ITIN. If you are ineligible for an SSN but need to file taxes or open a bank account in the U.S., an ITIN may be necessary. The IRS says that a foreign resident without an SSN needs to obtain an Individual Taxpayer Identification Number. They classify a foreign person as a resident alien for tax purposes based on how many days they are in the United States.
Comparison of SSN, EIN, and ITIN
FAQs
1. Which is more appropriate for my LLC: an EIN or an SSN?
Depending on the type of business entity, you may need to pay taxes5 for your LLC using either an EIN or an SSN. Multi-member LLCs filing taxes are required to use an EIN, while sole proprietorships and single-member LLCs can utilize Social Security Numbers. Consulting with our CPA team for individual LLC consideration is also recommended.
2. Can I rely on my EIN rather than my SSN for tax purposes?
Yes, if you’re operating as a business entity, you will use your Employer Identification Number (EIN) for tax purposes rather than your Social Security Number (SSN).
3. Are EINs solely intended for businesses, or can individuals also receive them?
An EIN is specifically designated for businesses. However, individuals can acquire an EIN by forming a business entity, like an LLC or corporation. As an individual, you would typically use a Social Security Number or ITIN.
Conclusion:
In conclusion, understanding the differences between an Employer Identification Number (EIN), Social Security Number (SSN), and Individual Taxpayer Identification Number (ITIN) is crucial for navigating tax obligations effectively. While an EIN is primarily designed for business entities, individuals can obtain one by establishing a business structure such as an LLC or corporation. For personal matters, utilizing an SSN or ITIN is essential. By choosing the appropriate identification number based on your circumstances, you can ensure compliance with tax regulations and streamline your financial management. Whether you are a business owner or an individual, seeking expert advice of Bizfyle can further clarify which identification number best suits your needs.
