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Difference between Tax id number and EIN

The life cycle of any startup in the US begins with registration of the entity in a specific state and one of the important aspects of the process is obtaining a Tax ID for business. It is quite commonplace to see businesses being confused about the type of Tax ID they need to obtain and without proper tax id’s one cannot conduct business in the country.

Introduction to Tax ID Number and EIN

Most often than not, businesses are confused about what they should obtain – a tax ID or EIN or both. Different types of businesses have different qualifications for tax purposes and the tax id number and EIN difference makes it easier for business startups to follow the right tax structure. Hence, keeping in mind the queries different businesses have pertaining to their tax qualifications, we have created this knowledge guide that will impart information on Tax ID number, the differences, the types of tax id and what tax id your business requires.

Tax Id number

In the US, a new startup or owners of new businesses have different tax liabilities, which are most often defined by the type of business like a corporation, limited liability company, partnership etc. It is important to understand that a Tax ID for business is a mandatory requirement but at the same time, it is important to understand what it really is and why it is important for businesses.

What is a Tax ID number?

A Tax ID number in the US is also known as the Taxpayer Identification Number (TIN) or Federal Taxpayer Identification Number and is used primarily for tax purposes unlike a Social Security Number (SSN), which is used for an individual’s tax and social security benefits. One of the major Tax ID numbers and EIN differences is the issuing authority. A TIN can be assigned by the Internal Revenue Service (IRS) or by the Social Security Administration while employer identification number (EIN) is assigned only by IRS. The TIN is also a nine-digit number and is required for filing income tax returns.

Why is it important?

The Taxpayer Identification Number (TIN) is assigned to individuals and businesses in the US and they are of different types depending on the individual or business. Taxes in the US are imposed on different levels like the federal, state, and local government level and they are levied on a variety of tangible and intangible assets including property, payroll, income, sales, dividends, capital gains, gifts, estates and imports. Taxes are imposed on individuals as well as business entities, trusts, estates and other forms of organization and such individuals and organizations require a tax ID for business or individuals to file their returns.

If you are planning to start a business then you will have to apply for and obtain a tax ID for business to facilitate income returns. In fact, businesses are required to inform IRS regarding their Tax Identification numbers as well as industry codes. The tax ID is not only useful for income reporting but also for starting a business bank account, setting up a payroll, maintaining a corporate veil, preventing identity theft, and building business credit for maintaining financial stability.

Is EIN and Tax ID the same?

It is quite common for businesses or startups to wonder if there are any tax id numbers and EIN differences as TIN and EIN are both assigned for tax purposes. Just like people are identifiable using different forms of ID like Social Security number (SSN) or driver’s license numbers; similarly, Tax IDs and EIN’s are used for identification of business entities.

When it comes to Tax ID number and EIN difference then what stands out is the fact that the tax ID number TIN is an umbrella term that comprises several different types of taxpayer identification numbers and this includes EIN. So, EIN is basically a type of TIN that is specifically assigned to businesses while the Social Security Number (SSN) and Individual Taxpayer Identification Number (ITIN) are also different types of TIN that are assigned to individuals.

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Types of Tax ID numbers

The most common definition of a tax ID number for business or an individual is that it is a special number that is assigned to individuals or businesses for tax purposes or creating an identity. Most startups in the US have to file a business tax return and the taxpayer identification numbers help in the process of filing the return.

There are different Tax ID types some of which may be for individuals while others are assigned to businesses. It is important to identify the right Tax id for your business as it will make filing tax returns easier.

  • SSN or Social Security Number: One of the most common Tax ID types is the Social Security Number (SSN). It is primarily used by individuals, single member LLC’s, and sole proprietors. The SSN is issued by the Social Security Administration (SSA) and you will be required to complete Form SS-5 and submit it to get the unique nine digit number.
  • ITIN or Individual Taxpayer Identification Number: The ITIN or Individual Taxpayer Identification Number is a unique nine digit Tax ID for business and it is issued by the Internal Revenue Service (IRS). You will have to submit Form W-7 to obtain this 9-digit tax ID number. This is another individual tax number and is used by non-resident or resident aliens, their spouses, and dependents or those individuals that are not eligible to obtain a Social Security Number (SSN).
  • EIN or Employer Identification Number: One of the most common Tax ID types for businesses is the EIN or Employer Identification Number. It is also known as the Federal Tax Identification Number and issued by the Internal Revenue Service (IRS). This is also a unique nine-digit number that is applicable to a wide variety of businesses. If your business or activities fall under any of the following then you will have to submit Form SS-4 to obtain an EIN.

    • Businesses that have employees
    • A business corporation or a partnership firm
    • If your business needs to file tax returns on Employment, Excise, or Alcohol, Tobacco and Firearms
    • If you are withholding taxes on income paid to non-resident aliens
    • If you have invested in a Keogh plan
  • ATIN – Adoption Taxpayer Identification Number: This is not a Tax ID for business and is used by individuals interested in domestic adoption. The Adoption Taxpayer Identification Number (ATIN) is a temporary taxpayer identification number assigned to a child being adopted. This holds true in a scenario where the adopting taxpayers are unable to obtain a Social Security Number (SSN) for the child being adopted. This temporary taxpayer number is issued by the Internal Revenue Service and you will be required to file the Form W-7A: Application for Taxpayer Identification Number for Pending Adoptions.
  • PTIN – Preparer Tax Identification Number: An enrolled agent who represents taxpayers before the Internal Revenue Service (IRS) like certified public accountants (CPAs) and attorneys require a PTIN. Preparer Tax Identification Number is one of the Tax ID types for individuals whose job is to prepare tax returns for U.S. federal tax returns or any other related tax form to be submitted to the IRS. You will be required to submit the Form W-12 for IRS Paid Preparer Tax Identification Number (PTIN) Application and Renewal.
  • State-Issued Tax Id Numbers: The need for a state Tax ID for business depends on whether the state you are operating from requires you to pay state taxes. Hence, the requirement for state issued tax IDs varies from one state to another. It is also known as a state tax registration or a state employer ID. This tax ID is required by businesses that are planning to sell goods or services and also if they will be hiring employees.
  • Federal Tax ID Lookup using EDGAR System: The EDGAR system is known as the Electronic Data Gathering, Analysis, and Retrieval system that is used by the U.S. Securities and Exchange Commission (SEC). The EDGAR is considered to be the primary system used by companies for submission of specific information with the SEC as required by law. It is a database of information pertaining to the Commission and the securities industry and is accessible to the public through the Internet. It is especially useful for searching Federal Tax IDs for businesses and helps in providing a company’s operational and financial information.

Tax IDs for Businesses

Most businesses formed in the US require a tax ID number or taxpayer ID. The Tax ID for business is different from an individual taxpayer ID. According to the Internal Revenue Service (IRS), the form of business you are planning to operate will determine the type of taxes you will be required to pay and the type of tax ID you will require.

Which Tax ID is needed for my business?

The type of business structure you have will define the type of income tax return you will have to file but the most common tax ID types that you will have to obtain is the EIN or Employer Identification Number. This is a Federal Tax Identification Number and it will help you to file your taxes with the IRS.

It is important to note that if you are planning to operate a single-member LLC with no employees or a sole proprietorship then your Social Security Number (SSN) will be the tax ID. On the contrary, if you hire employees in your LLC or file excise tax returns as a sole proprietor then you will have to obtain a proper Tax ID for business, which in this case is an EIN. If you are planning to form a Corporation or unincorporated business structures like limited partnerships then you will have to apply for an EIN.

If you are living overseas but want to operate a business in the US then the tax ID types that you may require are Individual Taxpayer Identification Number (ITIN) for individuals and Employer Identification Number (EIN). Most often, ITIN is an option for individuals not eligible for obtaining a Social Security Number (SSN) like non-resident aliens.

How do I get a Tax ID number?

Depending on the type of tax ID required, you will have to submit the required form with either the Social Security Administration (SSA) or the Internal Revenue Service (IRS). If you are applying for an individual tax ID like SSN then it will be issued by SSA and other tax ID types like ITIN or EIN will be issued by IRS. There is a separate application form for each type of tax ID. You will have to download the form from the SSA or IRS website depending on the tax ID required and then submit online or offline. If your business requires you to apply for Employer Identification Number then you can also do it quickly and securely from the IncParadise EIN service portal.

Do you require EIN assistance?

IncParadise is one of the most reputable companies when it comes to new business formation and we can help you with converting your idea into a fully functional startup by providing all incorporation services as well as help in maintaining your business as the registered agent. We not only provide services towards the incorporation process but also assist with various business related processes including EIN services. We have a team of experts who can provide you with information on EIN and how to obtain it. The IncParadise team is easily accessible and can help you with both EIN and EDGAR filings. Our team also holds expertise in providing additional incorporation services like S Corporation filings that will enable your business to enjoy tax benefits.

Get your business Tax ID Number today!