TIN vs EIN: The Vital Differences You Need to Know
An individual is identified in the US through Social Security Number, driver’s license, passport, and other identity proof documents. In the same way, identifying taxpayers in the States is done through TIN (Taxpayer Identification Number) and EIN (Employer Identification Number). Although both are used to identify taxpayers in the US, they serve different purposes. In this article lets us understand the differences between TIN vs EIN and where to use them.
The difference lies in the type of taxpayers these numbers are used for. For instance, individual taxpayers are identified by TIN, while businesses use EIN. These two terms might not be new to you if you are a regular taxpayer, but it’s natural to be confused as both are widely used interchangeably. If you are wondering what sets them apart, you are in the right place. In this post, we have explained what the Taxpayer Identification Number and Employer Identification Number are for, how they differ, and who needs them. Keep reading.
An Overview of EIN
EIN is for the business tax returns. It works just like the Social Security Number, which identifies the citizens of the US. EIN, in the same way, is used for business identification. For opening a business account with a bank, paying your tax returns, and acquiring other crucial business licenses, you are supposed to have a valid EIN number. Consisting of a 9-digit number, EIN is used across different industries, for all business entities, government agencies, certain individuals, sole proprietors, partnership firms, and other companies.
Also called Federal Tax Identification Number, EIN is issued by the IRS to all registered businesses in the US. The main purpose of EIN is to identify businesses across different states in America. IRS uses this information to get a clear picture of the tax returns each business has to file annually.
Every business entity that falls into the corporation or LLC category must have the Employer Identification Number. The number is also compulsory for businesses that withhold tax from their employees’ earnings, excluding wages. Put simply, a trust, government agency, partners, and even sole proprietors need an EIN to open their checking accounts. Another important thing to note here is that the IRS issues this number to businesses, irrespective of their size and the number of employees working in the firm.
Does Every Business Need It?
No doubt, all kinds and natures of businesses need an EIN, but there are certain exemptions. For instance, if you have not hired an employee, you can use your Social Security Number for tax identification, instead of applying for the EIN. Sole proprietors are exempted from EIN because they are not separate from their business.
The IRS doesn’t consider them a taxable identity, thus allowing them the freedom to skip the EIN requirement. Likewise, an LLC run and operated by a single member doesn’t need an EIN. Even though the owner and the company are considered two separate entities, they don’t need EIN so long as there is a single operator with no employees.
Benefits of Having EIN for Your Business
The unique 9-digit number that the IRS issues for your business will remain unique and won’t be reissued for any entity, even if the owner resigns. Below we have listed a few common reasons why everyone, whether or not mandated, should get their EIN number.
Avoid Tax Penalties
If the tax date arrives and you don’t have the EIN number yet, it’s important to initiate a request for an EIN number. Paying taxes without this identification number might result in the IRS rejecting your application. You will experience unnecessary delays in tax payments, which will eventually cause penalties. Besides, having an EIN reduces the risk of an audit for certain types of tax deductions. For example, if you are running a home business and want to deduct home office expenses, EIN will make your case stronger and lower the risk of audits and penalties.
Lower the Risk of Identity Theft
While it’s possible to use your SSN for taxes (only if your business qualifies for it), it’s best to have an EIN number for security reasons. It’s mainly used for separating your personal and business taxes. Once you have this number issued, you don’t have to show your social security number to your vendors, manufacturers, and others. This protects your SSN number and confidential data from getting leaked.
Become a Credible Business
You wouldn’t want to lose a client just because you couldn’t prove your credibility. One way to make your business appear reputable and trusted is by getting EIN issued. In order to give you a 1099 tax form, your client will require an EIN number that proves you are a legitimate and registered business in the US. This is really important for independent contractors and part-time freelancers.
EIN gives your clients an assurance that you aren’t just taking up a few side gigs. You need to show them you have a proper business and are committed to growing it. Plus, it proves that you are the owner of the firm and not just an employee working for the company. It adds more credibility to your business.
Get a Bank Account Easily
EIN is mandatory for businesses applying for checking or savings accounts. Some banks might accept your account opening application without an EIN number, but some banks, like Bank of America, require an Employer Identification Number to create your bank account.
In addition to the EIN, you are supposed to submit your business’s legal name, location, owner details, commencement data, and other information. Any reputable bank in the States will request you to submit your EIN number to open a checking or savings account with the bank. It gives them the assurance that you are a credible business.
Easy-to-Find Employees
You may currently not have any employees, but if you believe you will hire people and expand your team in the future, it’s important to have an EIN number. With an EIN, you can get started with the payroll and manage their taxes effortlessly. Plus, EIN builds your business’ credibility, making it easy to find employees and get them to work for your company.
How to Get Your EIn Number?
Getting your EIN number is a fairly simple procedure. You can apply for it online by following the below-listed steps.
Online Application
- Know Your Eligibility: First things first, the EIN number is not for everyone. It’s important to go through the eligibility criteria to figure out whether or not you are a good candidate for the EIN number. Your business must be located within US territories and you must have a TIN number.
- Application: You can apply for EIN directly on the IRS website. Make sure you complete the process in one sitting. Note that the session will automatically be inactive after 15 minutes of inactivity. So, make sure you complete everything within this period.
- Submit: Once you have successfully filled out the application form and all details are verified by the IRS, your Employer Identification Number will be issued immediately.
As mentioned earlier, EIN is only issued to businesses that are run and managed by a US citizen or a permanent resident and are located within the United States. Moreover, you must be considered a separate entity from your business.
Apply by Fax
You can also fill out the Form SS-4 and fax it to your state authorities. Mention the fax number in the application so that the IRS can send you the EIN number within 4-5 business days.
Apply Via Mail
You can also fill out the SS-4 form, and submit it at your state’s IRS center. The form verification will be completed within a few business days and you will get your EIN number within 4 weeks of application. The process, however, is a bit lengthy and time-consuming. It’s much better to fill out the form and apply for the EIN number online on the IRS official website. That’s the only way to get your Employer Identification Number issued immediately.
Overview of TIN
TIN or Taxpayer Identification Number is a broad term covering different tax numbers, including EIN. The main purpose of having TIN is to identify each taxpayer in the United States. That means whether you are running a business or have a service-based job, a TIN number is mandatory for filing annual tax returns. Issued by either the IRS or Social Security Administration, TIN is a 9-digit unique number assigned to all taxpayers, whether it’s an individual or a non-profit organization.
Not just for the tax returns, but this number is used for other purposes too. For instance, TIN is needed to get a loan. When an individual applies for a loan, they must submit their social security number. The information is sent to the credit bureau, which investigates the accuracy of the information. These agencies then track the applicant’s Taxpayer Identification Number (TIN) to get their credit history and determine their credibility. As mentioned before, TIN consists of different numbers, each serving a unique purpose.
- Social Security Number
- Employer Identification Number
- Adoption Taxpayer Identification Number
- Individual Taxpayer Identification Number
And more. As you can see, EIN is a specific type of taxpayer identification number, while the latter is a generic term covering different types of tax numbers used on tax return forms.
Understanding Different Types of TIN Numbers
Social Security Number (SSN)
Every US citizen and permanent resident is issued an SSN, which serves as their identity proof. This number helps individuals get a job in the States. Also, to qualify for different security benefits, it’s important to have a Social Security Number. To get your SSN, visit the Social Security Administration website and get all the documents needed for the SSN number and card.
Employer Identification Number (EIN)
EIN is also a nine-digit number, which is used to track corporations, sole proprietors, LLCs, and other taxpayers. The number is mandatory for businesses that are a separate entity from the owner. It’s issued by the IRS and is mandatory for companies that need to report their capital gains and taxable income annually.
Adoption Tax Identification Number (ATIN)
For parents planning to adopt a child, but can’t get their Social Security Number, they can use a temporary tax identification number, which is ATIN. This number is again a unique 9-digit code, issued by the IRS. For this to work, the child must be a permanent resident of the US or an American citizen. ATIN is also necessary when you are unable to collect the child’s Social Security Number from their biological parents or the SSN agency.
Preparer Tax Identification Number (PTIN)
The government has made it compulsory for tax preparers, accountants, and other professionals involved in tax returns to have a preparer tax identification number. This must be filed on the tax returns. This eight-digit number is assigned to those who assist US citizens in preparing taxes. Just like other TIN numbers, every PTIN number is unique.
Individual Taxpayer Identification Number (ITIN)
Those who are not eligible for Social Security Numbers (SSN) can get ITIN. For this tax identification number, individuals are supposed to fill out Form W-7 and submit it to the IRS either online or through a walk-in office. Your bank or an Acceptance Agent can help you complete this form and obtain your ITIN number.
How to Get Your TIN Number?
The process of obtaining a TIN number varies depending on which type you are getting. For instance, you need to apply for an SSN at the Social Security Administration office, while the ITIN number is issued by the IRS. For ITIN, you must fill out the Form W-7 and submit it to the IRS either through your state’s ITS office or a verified agent.
The Acceptance Agents are permitted to assist people in submitting their ITIN and other taxpayer identification numbers to the IRS. They might assist you in filling out the W-7 form and forwarding it to the IRS. To learn more about how to obtain your TIN number, contact your state authority or a certified accountant.
Note that TIN is used by almost every country for different purposes. Their names might be different. For instance, Canada uses SIN (Social Insurance Numbers) to cater to employment, social benefits, and other purposes.
Differences Between TIN vs EIN
Now that you know the purpose and use of both, let’s check out their key differences.
| Basis | Taxpayer Identification Number (TIN) | Employer Identification Number (EIN) |
| Purpose | TIN can be used for various purposes, including adoption, individual tax payments, preparer identification, and for claiming social security benefits. | EINs are only used for filing business taxes. Although they help in getting loans and finding employees, their main purpose is to be identified as a business during tax return filing. |
| Eligibility | Individuals, tax assistants, accountants, and other taxpayers qualify for TIN. | Only businesses that have employees and a registered corporation can get EIN. Sole proprietors who operate individually can also apply for EIN, but it’s not mandatory. |
| Scope | TIN is a broad term that includes different taxpayers’ identification numbers, including SSN and EIN. | EIN is a part of the taxpayer identification number. |
| Issuing | TIN is issued by the IRS or Social Security Administration. | EIN is issued by the IRS only |
How to Know if You Must Have a TIN Number?
Every US citizen or permanent resident who starts a business within the US territory must have a Taxpayer Identification Number. Basically, every taxpayer needs a TIN, although EIN is not mandatory for sole proprietors and LLCs that do not have employees.
These numbers are also required when you claim government benefits, apply for employment in a US-based company, or for other tax-related purposes. Put it in simple terms, every US resident or citizen should apply for a TIN number to streamline their tax return process.
Since it’s a confidential document, you cannot find your TIN number online. The only way to locate it is through the official Tax Identification Number document forwarded by the Internal Revenue Service. If you have misplaced or lost the document, contact the SSN immediately. Once again, TIN and EIN are different in that the former covers many identification numbers, including EIN. For example, your social security number is part of TIN but is issued by the Social Security Administration and is used for tax returns and employment benefits.
Conclusion
That was all about the difference between TIN and EIN. As mentioned in the post, EIN is a part of the taxpayer identification number. There are four more numbers, which you can apply for depending on your individual requirements and what best fits your business niche. While both are completely different, they share one similarity.
Each tax ID is used to identify the taxpayer, the preparer who helped in the tax return filing, and the dependent. Note that EIN is not mandatory for every individual or business. You can apply for other TINs, including Social Security Number or Individual Taxpayer Identification Number if that suits your needs. However, it’s advisable to have an EIN if your business has employees and you issue payroll regularly.