A business tax ID number is an essential element of any tax filing process, as the IRS uses these unique identifiers to track taxpayer transactions for proper filing and returns. Different types of tax identification numbers cater to specific groups—social security number (SSN), employer identification number (EIN), individual taxpayer identification number (ITIN) and preparer taxpayer identification number (PTIN). Understanding the difference between TIN vs. EIN, as well as each type’s purpose, can simplify taxation processes significantly.
The Tax ID Myth
It’s a common misconception that TINs are only for businesses or high-earning individuals; however, this is incorrect. Any person or entity with U.S. tax obligations must have this identification number. A TIN is necessary whether it’s used by an average individual filing their personal taxes, a thriving business settling income tax dues or trusts and estates managing their financial responsibilities.
A business tax ID is crucial when it comes to federal tax reporting and filing income taxes. An EIN is often needed when applying for business licenses and setting up a bank account under a company name. Only one TIN is issued per business entity, but one owner may have more than one entity and therefore, may use multiple TINs.
TIN vs. EIN: What’s the Difference?
TINs encompass all forms of tax identification numbers, including EINs, SSNs and ITINs; an overarching label used by the IRS to monitor taxpayers.
An EIN is a specific subset of a TIN. It’s issued exclusively by the IRS for business taxation needs.
Do All Businesses Need an EIN Number?
Not all business enterprises require an EIN. Sole proprietors can use their personal social security numbers unless they have employees on board—then getting that coveted employer identification number becomes mandatory.
Why is an EIN important for businesses? This nine-digit identifier enables businesses to file taxes separately from owners’ personal returns, and it’s essential when setting up a retirement plan, such as a 401(k) or other tax-deferred pension plans. Even without employees, it can be useful to have an EIN for a business to more easily separate financial activities.
EINs are assigned to employers, sole proprietors, corporations, partnerships, estates, trusts and other entities for tax filing, reporting and payment purposes.
If you’re unsure of whether or not your enterprise needs one of these ID numbers, professional tax experts are well-versed in helping small-to-medium-sized companies navigate these complexities.
What Are ITINs?
Conversely, individual taxpayer identifications (ITINs) are issued to foreign nationals who need to pay income tax but do not qualify to be issued a social security number. They are also used by non-resident aliens who need to file federal tax returns in the U.S.
What Are PTINs?
A preparer taxpayer identification number (PTIN) is a tax identification number issued by the IRS to a certified business tax preparer. Your preparer will include their PTIN with your taxes to demonstrate their credibility—and also to help you demonstrate that you’ve worked with a certified expert. It’s important to find the right type of tax preparer with a PTIN and the specific experience for your tax needs.
How to Obtain a Tax ID Number
There are specific procedures to acquire different types of TINs. For businesses within the U.S., the most efficient process to be issued an EIN is to complete an online application on the IRS website. However, those residing outside the country may apply by telephone, fax or mail. Other processes and forms are used to get ITINs or SSNs for individual income tax returns or U.S. bank accounts.
Overseas applicants that mail their applications should anticipate processing times that could stretch up to four weeks before receiving official documentation containing the new employer identification number.
If you have previously obtained a TIN and misplaced it, it’s not necessarily lost forever. Often, these identification numbers can be easily located on previous years’ financial documents when filing taxes was a mandatory requirement. You can also visit the Social Security Administration’s website or one of their offices to retrieve your SSN.
Get Clarity On Your Taxes
Unraveling business tax ID numbers is a critical step in navigating your company’s financial obligations. Understanding the differences between TIN vs. EIN can help businesses make informed decisions about their tax responsibilities.
Navigating taxes does not have to be overwhelming or confusing. Get matched with a Paro tax expert with years of experience in guiding businesses on their tax filing strategies. Schedule a free consultation to learn about how our elite tax preparers or CPAs can help you meet critical tax deadlines or minimize tax liability.
