If you’re new to the U.S. business world, you’ve probably come across the term EIN, which stands for Employer Identification Number. You might have heard it’s essential for any U.S. business, but you’re unsure about the why, when, and how. Plus, with similar-sounding terms like SSN and ITIN thrown around, it can get a little confusing! Here, we’ll break down what these numbers are, when you need them, and how they differ, so you can navigate them with confidence.
What is an EIN?
An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to identify a business entity in the United States. It’s primarily used by businesses for tax reporting, banking, and other regulatory purposes.
Uses of the EIN:
An EIN serves multiple important functions, allowing businesses to:
1. File Tax Returns and Pay Taxes:
Businesses use an EIN to report and pay federal taxes, including income tax, payroll tax, and excise taxes.
2. Hire Employees:
An EIN is mandatory if a business has employees, as it’s used to report employment taxes and Social Security contributions.
3. Open Business Bank Accounts:
Most banks require an EIN to open a business account, allowing businesses to keep their finances separate from personal funds.
4. Apply for Business Licenses and Permits:
Some licenses, permits, and certifications require an EIN as part of the application.
5. Enhance Business Credibility:
Having an EIN provides a level of legitimacy to a business, signalling that it operates as a recognized entity.
EIN vs. SSN vs. ITIN
While all these identification numbers serve specific purposes in the U.S. tax system, they are used in different contexts.
| EIN | SSN | ITIN | |
|---|---|---|---|
| What is? | Employer Identification Number, a nine-digit number used to identify business entities | Social Security Number, a nine-digit number issued to U.S. citizens, permanent residents, and certain temporary residents | Individual Taxpayer Identification Number, a nine-digit number issued to non-U.S. residents who are ineligible for an SSN. |
| For whom? | Businesses, including corporations, partnerships, and trusts | Individuals | Non-resident aliens and others without SSNs |
| Why? | Filing taxes, hiring employees, opening business bank accounts, and applying for business licenses | Personal identification, employment, and tax reporting for individuals | Used by non-residents to file taxes in the U.S. if they don’t qualify for an SSN |
→ EIN vs. SSN:
An EIN identifies a business entity, while an SSN is used to identify individual U.S. citizens and residents. Businesses can have multiple EINs for different entities, but individuals generally only have one SSN.
→ EIN vs. ITIN:
An ITIN is for individuals who need to file U.S. taxes but don’t qualify for an SSN, typically non-residents or resident aliens. An EIN, on the other hand, is used strictly for business entities or trusts.
What is the overall process to apply for an EIN?
- Eligibility:
To apply for an EIN online, you need either an SSN (Social Security Number) or an ITIN (Individual Taxpayer Identification Number). If you are an international founder who do not have SSN (because you are not eligible) or ITIN (because it’s your first US business)—you can still apply EIN for your business but you won’t be able to file online.
- Choose an Application Method:
♦ Online:
The fastest way to apply is through the IRS website. The EIN is generated immediately upon completion. However, you need to have a SSN or ITIN for online application.
♦ Mail / Fax:
Any business can apply EIN via mail or fax, but these methods take longer time for processing ranging up to 4–8 weeks to get your EIN. If you have SSN or ITIN, filing online application is best. However, if you are a non-resident owned entity with no SSN or ITIN, this is the only option available to you. You need to get the SS-4 form, fill it up, get it signed and mail or fax it to the address provided by IRS.
Trouble for Global Entrepreneurs?
Well, if you are a non-resident, you may not qualify for a Social Security Number (SSN). Instead, you might need an Individual Taxpayer Identification Number (ITIN). With an ITIN, you are eligible to apply for an EIN online. However, if you don’t have an ITIN or this is your first time applying, you can still get an EIN. Although online application may not be an option, you can complete Form SS-4, available on the IRS website, and submit the signed form by mail or fax. The only downside to this method is that it can take several weeks to receive your EIN.
The good news is that Form SS-4 can be digitally signed, as the IRS has eased some “handwritten signature” requirements.
Sounds easy! But correct filing can be tricky. Given the processing time of up to eight weeks, you’ll want to avoid any risk of rejection due to filing error.
No worries, Bizfyle can assist with an easy filing process, so you can relax and focus on planning your business. Our EIN application service is also available as part of our Formation Package, making it even easier to get started!
