Tax identification numbers (TINs) identify a person or business on government documents and are essential for tax and compliance matters. And, if you’re a business owner, you probably have more than one TIN to keep track of.
You’ve likely heard of Social Security numbers (SSNs) already, but depending on your circumstances, Employer Identification Numbers (EINs) and Individual Taxpayer Identification Numbers may be less familiar to you.
So, which number should you use when you file your taxes? Is one better than the others? In this blog post, we’ll cover these questions and more.
What is a Social Security Number?
Social Security numbers (SSNs) are, by far, the most common tax identification numbers used in the United States. Each one is made up of nine digits (in the format XXX-XX-XXXX) and is used by US citizens and authorized residents to get a job, get paid, and collect Social Security benefits starting at age 62.
What is a Social Security Number used for?
The United States government uses Social Security numbers to track an individual’s employment history and earnings, as well as to determine their eligibility and payments for benefits like Social Security and Medicare.
SSN holders will need this number to open a bank account, apply for a passport or driver’s license, apply for federal student loans or public assistance, and more.
Creditors and other financial institutions may use this number to check an applicant’s credit, while employers use SSNs to confirm that new hires are eligible to work in the United States (Form I-9) and report their employees’ annual income (Form W-2).
Of course, if you plan on hiring employees (or already have), this also means that you’ll need to keep any paperwork with their SSNs in a safe and secure place. Many states have implemented laws that prevent employers from disclosing or displaying their workers’ SSNs to the general public. For example, California and Texas prohibit companies from mailing out forms with an individual’s SSN on them except on certain application, enrollment, or tax forms.
The federal government also forbids employers from using the Social Security Number Verification Service to collect information on a prospective employee until they have accepted an offer with the company or have established their payroll records with the proper documentation.
Social Security numbers never expire and are typically assigned to an individual for life. However, a person may qualify for a new one if they experience harassment, abuse, or danger when using it or if they are a victim of identity theft. Keep in mind that changing your SSN doesn’t mean that the old one is deleted—the SSA, other government agencies, and some companies may still keep records under your old one.
How to get a Social Security number
If you don’t have an SSN, the application process is free and straightforward.
Visit the Social Security Administration (SSA) website and complete Form SS-5. In addition to your application, you’ll also need to turn in copies of documents that prove your identity, age, and United States citizenship or immigration status.
Once the SSA receives all of your documents and approves your application, you can expect to receive your SSN card via mail in two to four weeks.
What is an Employer Identification Number?
An Employer Identification Number (EIN) is a nine-digit federal tax identification number (formatted XX-XXXXXXX) for businesses.
If your business meets one of the following qualifications, you probably need to apply for an EIN:
- Has employees and pays them wages
- Is a multi-member LLC
- Operates as a corporation or partnership
- Has a Keogh plan or solo 401(k) retirement plan
- Has been bought or inherited
- Has filed for bankruptcy
Some businesses, like sole proprietorships and single-member LLCs (SMLLCs)without employees, don’t need an EIN.
If your situation is unique, or for any reason you’re feeling unsure, take the surprisingly short and easy, six-question quiz on the IRS web page titled Do You Need an EIN? It’s a yes/no quiz and there are no “it’s complicated” response options. If you answer yes to any of the questions, you must apply for an EIN.
What is an Employer Identification Number used for?
Think of an EIN as an SSN for your company. Note that business registration is handled at the state level, so it’s possible for companies in different states to have the same Doing Business As (DBA) name.
Giving companies a unique EIN allows federal and state governments to distinguish between companies with similar business “nicknames” and prevent mixups. This also means that, if you have multiple businesses, each one may need its own EIN.
Business owners must have this number if they plan on hiring employees or forming a multi-member LLC, corporation, or partnership. Banks and other financial institutions will need it when you open a business bank account and apply for a business loan or other lines of credit, although some make exceptions for sole proprietorships and SMLLCs.
State and local government agencies require your EIN when you apply for a business license and permit, while the federal government will ask for this number when you report and pay taxes (such as federal income, Social Security, and Medicare taxes). But as mentioned earlier, most sole proprietors and SMLLC owners don’t need an EIN to do so—an SSN or ITIN would work instead.
Your EIN is permanent and doesn’t expire, so once it’s assigned, you don’t need to get a new one except under special circumstances. For instance, changing the name of your business or moving to a new location doesn’t require you to apply for a new Employer Identification Number. But if your company goes through major changes, like a change in ownership or business structure, it’s recognized as a new legal entity and will need a new EIN to mark this new stage of the business.
Guidelines differ slightly depending on what entity your organization currently operates as and what you plan to do with it, so you may want to talk with your lawyer for details on what to do in your situation.
Similarly, the IRS doesn’t preemptively cancel EINs either, even if you never use the number or close down your business. The only way to do so is by closing your IRS business account—this will automatically cancel your EIN as well.
How to get an Employer Identification Number
Applying for this tax identification number is free and can be done in one of four ways: online, by phone, by mail, or fax.
Applying for an EIN online
Follow the steps on this IRS webpage to determine your eligibility and submit your application. Once your application is turned in and the information verified on the spot, you will receive your official EIN confirmation notice immediately. From there, you can download, save, and print the document for your records.
Applying for an EIN by phone
International applicants must apply for an EIN over the phone by calling 267-941-1099 (not a toll-free number) between 6am-11am ET Monday through Friday.
An IRS representative will then ask you questions from Form SS-4, so you may find it helpful to fill out the form beforehand so you’re prepared for the call. The answers you provide during the call will serve as your application form and will be used to create your IRS business account. Additionally, the IRS agent may ask you to mail or fax the signed SS-4 within 24 hours to the address or fax number they give you.
Once you provide all the answers your representative needs to establish your account, you’ll receive your tax identification number during the call. Write this number down in the “EIN” box located in the upper right-hand corner of your Form SS-4, and sign and date it. This will serve as your confirmation notice.
Applying for an EIN by mail
Mail in your completed application to the proper address and you’ll receive your EIN by mail in about four to five weeks.
If your business (or legal residence, if you’re operating as a sole proprietor or SMLLC) is located in one of the 50 states or the District of Columbia, you’ll need to send your application to the following address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
But if you’re located outside of the US, mail your application to the following address instead:
Internal Revenue Service
Attn: EIN International Operation
Cincinnati, OH 45999
Applying for an EIN by fax
Similar to the mail-in method, you can fax your completed application form to the appropriate fax number, all of which are available 24/7. Make sure to provide your fax number on your fax cover sheet, as the IRS will send your EIN to that number in about four business days.
If your business (or legal residence) is in one of the 50 states or DC, fax the completed form to 855-641-6935.
If your business operates outside of the US, use 855-215-1627 if you’re currently located in the US and 304-707-9471 if you’re not. A long-distance charge will apply if you’re located outside of the local calling area.
Regardless of which method you choose to apply with, you’ll need the following information on hand:
- Legal name of the applicant
- The legal name and tax ID number (either an SSN or ITIN) of the true principal officer, general partner, grantor, owner, or trustor—called the “responsible party” by the IRS
- Legal name, trade name (if applicable), address, and type of business entity of the company
- The number of members, if applying as an LLC
- The state or country of incorporation, if applying as a corporation
- The date the business was formed or acquired
- The primary activities of the business
- The maximum number of employees expected in the next 12 months and the first date that wages were paid
The IRS allows you to use a P.O. box for your mailing address, although you can’t use it for your street address. For that section, you’ll still need to provide the physical location of your business.
Note that, even in cases where you receive your EIN immediately, it will still take up to two weeks for the IRS to input your number into their permanent records. This means that you won’t be able to file an electronic return, make an electronic payment, or pass an IRS Taxpayer Identification Number matching program until then.
Do you need a state EIN, too?
A state tax identification number (also known as a state EIN) is separate from the EIN you use to file federal taxes, although they’re used for similar purposes.
Nearly all states, except for South Dakota and Wyoming, require you to pay business taxes in the form of income, employment, or gross receipts taxes—meaning you may need to register for a state EIN in order to do so. But even these outlier states still require you to apply for an identification number for your business in order to hire employees, so you’ll likely need to file for a state identification number at some point if you plan on expanding your business.
The application process is similar to the federal one, but because it varies slightly between states, you’ll need to check with the department in your state that handles tax identification registration for more information.
What is an Individual Taxpayer Identification Number?
An Individual Taxpayer Identification Number (ITIN) is another nine-digit tax identification number (formatted XXX-XX-XXXX) for individuals who do business in the United States and must pay taxes but aren’t eligible for an SSN—such as foreign nationals or undocumented immigrants.
What is an Individual Taxpayer Identification Number used for?
Individual Taxpayer Identification Numbers are only used for tax identification and reporting purposes, especially for those running a business in the US, so it cannot be used for other identification purposes outside of taxes.
Most importantly, an ITIN doesn’t authorize its owner to work in the US, receive Social Security benefits, or qualify dependents for an Earned Income Tax Credit (EITC). While undocumented immigrants are required to pay taxes (and in fact they contribute billions of dollars in U.S. taxes—including Social Security taxes—every year), they don’t receive many of the benefits. If you’re an employer and the person you want to hire needs work authorization, you may want to consider the H-1B visa route and contact your employment attorney.
The 2015 Protecting Americans from Tax Hikes (PATH) Act includes guidelines that require certain ITIN holders to renew their tax identification number if they plan on using it to file their returns.
For instance, all ITINs issued after December 31, 2012 must be renewed every five years. Additionally, ITINs that aren’t used to file federal tax returns at least once in three consecutive years will expire. If you have an ITIN but don’t use it to file your federal taxes for three years straight, the number will expire on the final day of the third year.
Other ITINs that have expired as a result of the PATH Act include those:
- Issued in 2012 or earlier
- Containing middle digits 70 through 87
- With middle digits 88 or 90 through 99 that were assigned before 2013 and have not already been renewed
The IRS does send out notices reminding those with expired ITINs to renew their number if needed, but you can also renew your ITIN proactively by completing and turning in IRS Form W-7 (more on this in the next section). If your ITIN will expire before the federal tax deadline but you plan on using it to file this year’s taxes, the IRS also recommends that you renew your number as soon as possible to prevent any delays in the processing of your tax return.
If you file your tax return with an expired ITIN, the IRS will still accept your return and mark it as filed on time, but your refund may be delayed and you might not receive any of the exemptions or credits you claimed until you renew your ITIN. You can also expect to receive a notice from the IRS about your ITIN expiration and possible delay in your tax refund.
For more information about the new ITIN expiration guidelines, visit the IRS website.
How to get an Individual Taxpayer Identification Number
Individuals interested in applying for an ITIN must fill out Form W-7 and include a copy of their federal income tax return plus proof of identity and foreign status.
Applicants can mail the documents directly to the IRS or apply in-person at an IRS walk-in office or with an IRS Certified Acceptance Agent. After about seven weeks, applicants can expect to receive a letter with their ITIN in the mail.
If you already have an ITIN but need to renew it in order to file your federal taxes, you must fill out Form W-7 and include the following with your application:
- Your reason for needing the ITIN
- Your original identification documents (or certified copies) from the issuing agency (e.g. U.S. Citizen and Immigration Services, or your embassy or consulate) and any other required documentation to support your application
You can file your ITIN renewal in the same way you would apply for a new ITIN: by mail, at your local IRS Taxpayer Assistance Center, or with an IRS Acceptance Agent. Once you turn in your application, the IRS will send you a notification about your application via mail after about 7 weeks (or 9 to 11 weeks if you renew between January 15 – April 30 or from overseas).
Keep in mind that, unlike primary taxpayers, spouses or dependents can’t renew their ITINs ahead of time. They can only renew their tax number when filing an individual tax return or if someone else claims them on a tax return for a tax benefit. If you find yourself in this situation, you’ll need to attach a federal tax return to your W-7 renewal form.
Learn more about renewing expired ITINs in this IRS fact sheet.
EIN vs. SSN vs. ITIN: Differences you should know
Let’s break down the distinctions between these three numbers.
ITIN vs. SSN
Social Security Numbers are held by US residents and authorized non-citizen residents (like green card holders and students on visas) only.
Individual Taxpayer Identification Numbers, on the other hand, are for US residents with foreign status as well as foreign entities (including partnerships, corporations, and LLCs) that do business in the country.
ITINs are only used for tax purposes, while SSNs offer their holders additional benefits and access to other social services. Certain non-citizens will need an SSN to work in the US or an ITIN to do business in the US.
However, no one should have both a Social Security Number and an Individual Taxpayer Identification Number. If you originally had an ITIN and then received an SSN later on, you must notify the IRS so they can consolidate your tax records under your SSN.
EIN vs. ITIN
An ITIN is like an EIN for individuals that are ineligible for an SSN. It allows those who are required to pay US income taxes—such as non-resident foreign national business owners and entrepreneurs—but don’t have an SSN to file their returns with the IRS.
However, an ITIN doesn’t authorize its holder to find employment in the United States, as you can’t use this number to complete a new hire’s Form I-9.
EIN vs. SSN
Both EINs and state tax identification numbers are like SSNs for businesses (minus the retirement and Medicare benefits) because they allow government agencies to identify and keep track of businesses and their tax payments, just like they do with individuals.
Most companies will need an EIN and state tax identification number in order to conduct much of its business dealings, but single-member entities that pay taxes through the owner’s personal returns (called disregarded entities) don’t necessarily need them. In fact, some disregarded entities are required to use their SSN when filing business taxes, particularly on information returns and any income tax-related reporting, such as Form W-9.
On the other hand, single-member LLCs must use their EIN when reporting and paying employment and excise taxes. Some banks also require you to have an EIN when you open a business account with them, while vendors or clients may also need your EIN in order to process payments.
If your disregarded entity must report income on state tax returns using an EIN or pay state taxes (such as employment or excise taxes), you will need to register your company for a state tax identification number as well. Keep in mind that tax laws vary between states, so you’ll want to check with your tax professional for details.
Which taxpayer identification number should you use for your business?
As mentioned earlier, most businesses (S corps, C corps, partnerships, and any entity with employees) that are registered with the IRS will need an Employer Identification Number, even if they don’t have any employees. And as any tax preparer will tell you, having an EIN is also important because it helps you keep your personal and business finances separate.
SSNs and ITINs are only used in a business capacity if you’re running a company that’s not required to file taxes separately from its owner. For example, most sole proprietorships and single-member LLCs that are not incorporated and have no employees use the owner’s SSN or ITIN to file business taxes since they go through the owner’s personal returns.
What happens if you use the wrong TIN on your tax return?
If you write the wrong tax identification number (or make any other mistakes) on your tax return, chances are the IRS will find it and send you a notice to correct it by the deadline provided. This letter will also outline the steps you must take to correct the mistake.
Of course, with so many documents going in and out of the department, there’s always the possibility they’ll miss it. But if you catch the mistake before they do, you’ll still want to make the change as soon as possible.
Why? If the change results in you owing more in taxes than you thought, the IRS may decide to charge you interest and penalties from the due date of your tax return until the day you repay the debt—and no one wants that.
Are there penalties for not using the correct tax identification number on your return?
If the IRS catches one of these mistakes, they note it as a Failure to File Correct Information Returns and impose a penalty for every return with the incorrect information on it.
The bright side: The IRS will only issue one penalty for each return, regardless of how many details are incorrect. If they find multiple mistakes on the same return, though, they’ll use the mistake with the greatest penalty amount as the basis for your fine.
Additionally, if you wait to correct the mistakes on your form, the IRS will penalize you accordingly. There are also no maximum penalty limitations if the agency decides that the mistakes were done out of “intentional disregard,” and they might even file a criminal suit against you.
If you file taxes with the wrong TIN, how can you correct it?
If you’re a business owner filing through your personal returns, you can correct your mistake with Form 1040-X. Send the completed form along with an explanation of the changes made and any other updates made to the relevant schedules.
The process is similar for other business entity types, although the form you’ll use to amend your original return will be different:
- Corporation: Form 1120x
- Partnership or multiple-member LLC: Form 1065X
Amending tax returns for S corporations follow slightly different guidelines. To correct a tax form mistake for this business type, first you’ll need to file a new Form 1120-S with the updated information for your business along with an explanation of the changes you’ve made. Make sure to check the box on page one that says “amended return” (or “superseding,” if you’re filing it before the form’s original deadline).
Once that’s finished, you’ll then need to prepare updated Schedules K-1 and amended personal tax returns (using Form 1040-X) with the new information as well.
Having the right tax identification numbers—and using them in the right settings—is important, especially as your company grows.
Because different business entities have different needs and guidelines, contact a tax pro if you need more guidance on which one to use for your organization.
