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EIN vs. ITIN vs. SSN. It’s safe to say that if someone is not an entrepreneur, they probably only know the definition of the last acronym in that trio. As a business owner, you, on the other hand, are likely more than familiar with all three terms.
Most small business owners have an employer identification number (EIN), an individual taxpayer identification number (ITIN), and a social security number (SSN). This allows the IRS to identify and account for their business entities. Obtaining these numbers also ensures individuals remain in compliance with tax laws in the United States.
What these numbers are not, however, are identical copies of one another. Let’s take a closer look at the definition of each federal ID, what it is used for, and why an entrepreneurs needs one to conduct business.
A social security number (SSN) is a nine-digit number issued to United States citizens and permanent residents. Over the course of one’s lifetime, the U.S. government will use this number to track your earnings and years employed. Once you are ready to retire, this number will be used by the U.S. government to determine the amount of social security benefits you receive.
Social security numbers were originally created in 1936 with cards issued to their owners in 1972. Added measures would be taken in later years to prevent against the card’s alteration and forgery. In 1983, under Section 205(c)(2)(G) of the Social Security Act (SSA), it was stated that social security cards would be made with bank-note paper and could not be counterfeited.
SSNs protect a great deal of your personal information. As such, they are also susceptible to potential identity theft. It’s important to guard this number closely, or consider getting another, less sensitive federal ID as an added precaution. We’ll talk a little more about that in a moment.
Before you owned a small business, your SSN played a key role for getting hired for new jobs or even obtaining a driver’s license. What can you use a social security number for as a small business owner?
U.S. residents typically do not need to worry about obtaining a SSN since they have already been issued one by the SSA. What they do need to consider is taking action to safeguard these numbers. It may be in their best interest to obtain an EIN next.
An employer identification number (EIN) is a nine-digit number issued by the IRS to identify a business entity. Once you have applied for an EIN, you may use this federal tax ID to legally identify your business. You may also continue using your SSN, too.
The uses for an EIN are numerous for entrepreneurs. Here are a few of the benefits to having (and using) an EIN to benefit your business.
Did you know that once you have an EIN, it never expires? That’s just an added perk to obtaining this federal tax ID. Beyond the lack of expiration date, an EIN is also critical to safeguarding your SSN. You may use it in lieu of your SSN on various official documents pertaining to your business.
That being said, however, it’s important to protect your EIN just as much as you would an SSN. An EIN is still susceptible to identity theft, so be careful not to leave it written in plain sight where someone might see it.
Let’s say you are an individual (who may be either a U.S. resident or nonresident alien) that needs a U.S. taxpayer ID number. You are in a situation where you are required to file a U.S. tax return or present that you have a federal tax ID. However, you don’t have an SSN and aren’t eligible for one either. For circumstances like these, the IRS will issue an individual taxpayer identification number (ITIN) to individuals that have applied for ITINs.
An ITIN only has a few purposes, most of which center around staying in compliance with U.S. tax laws. According to the IRS, the shortlist of things one cannot do with an ITIN includes the following.
The only real purpose that an ITIN provides entrepreneurs is federal tax reporting. These numbers do not serve any other purposes for entrepreneurs. This is still an important function to ensure your U.S. tax returns have been filed, so if you know you need an ITIN it is recommended that you apply for the number as quickly as possible.
Now that you have a thorough understanding of each of these terms, take a look at each one to determine which your business—and you as its owner—requires. If you are still unsure, consult with an attorney or accountant for additional assistance.