Table of Contents
EIN number vs SSN, ITIN: A Business Owner's Guide to Taxpayer Identification Numbers
When linking tax duties and business endeavors or financial proceedings in the United States, two important metrics come into play. The Employer Identification Number (EIN) and the Social Security Number (SSN). Even though these numbers might look similar in terms of their function, like their tools, they have a unique purpose and are used for different endeavors. Therefore, understanding the contrast between an EIN and an SSN is important for a business, self-employed people, and those looking to navigate the difficulties of the U.S. tax system.
Understanding an EIN ( Employer Identification Number ) number
The Employer Identification Number (EIN), also termed a Federal Tax Identification Number (TIN), is a rare-digit number assigned by the Internal Revenue Service for nonprofits, businesses, and other important organizations for tax endeavors. This EIN is utilized to identify an organization using the IRS system. It is quite like a Social Security Number (SSN), which is used to identify individuals.
Who needs an EIN
The sole purpose of an EIN is to make tax reporting and compliance managed in a better way. This Number gives the IRS and other governmental organizations to track a businesses activities and proceedings like employment taxes, income taxes and other obligations as well. This Employee identification number is initiated for businesses to file taxes more efficiently, pay employees and facilitate business accounts like business bank accounts.
When is an EIN number necessary?
An EIN number is normally used for:
Carrying business with employees as EIN is mandatory for any business that hires employees.
Corporations and partnerships are required to have an EIN, even those that don’t have any employees.
Self-employed individuals like sole proprietors that don’t have any employees don’t require an EIN, but it is still used for reporting tax and might be mandatory for some important business activities.
Nonprofit organizations are required to acquire an EIN.
Estates and Trusts are liable to hold an EIN for tax-related activities.
Understanding an SSNÂ ( Social Security Number )
Social Security Number (SSN) is a nine-digit number provided by the Social Security Administration (SSA) for U.S. citizens, permanent U.S. residents, and some temporary residents for tracking an individual’s income, allowances, benefits, and other important social-security-related proceedings. SSN is one of the most common identifiers for U.S. citizens and residents, and it serves as both a way to track taxes and to determine the criteria for various government advantages.
The Need for an SSN
SSN is used most importantly to find an individual’s earnings and make sure that they are paying their social security taxes. SSN is also utilized for certain SSN services like:
Using it for social security benefits, as an SSN can find out the individual income, earnings history to find out the eligibility criteria for social security perks like disability, retirement and other benefits.
Tax reporting is done by SSN as it is used while the filing of income tax returns, and it is also utilized by employers for the reporting of income, withheld taxes and other tax-related data concerning their employees.
When is an SSN utilized?
Following are some of the operations of an SSN:
It is mandatory for all U.S. citizens.
It is important for working individuals or anyone employed in the United States is also required to have an SSN, filing taxes and the receiving of income.
Individuals utilize their SSNs to file their personal income tax returns in association with the Internal Revenue Service.
For receiving government benefits and allowances like Medicare, and other benefits, are all possible if only you have an SSN.
Key Contrasts between an EIN and SSNÂ
Even though an EIN and SSN are both nine-digit numbers, there are some major differences in terms of their functions and organizations, which are important concerning the different entities that utilize them. Following are some of the key differences between these two numbers:
Usage
Ein is most commonly used for finding business organizations like corporations, collaborations and non profit organizations, particularly for tax benefits.
SSN is used mostly for finding a persons income, earnings, paying of taxes and finding out criteria for social security allowances.
Who is it important for
EIN is important for business organizations and other entities like estates.
SSN is important for U.S. residents as citizens and for foreign individuals residing in the U.S. in some cases, like those who are working.
Provider
If you need an EIN, it is provided by the Internal Revenue Service (IRS) to the business owners who use an ein.
The SSN is provided by the Social Security Administration (SSA)
Usage
Business entities use EIN for tax purposes like federal income tax return. If you plan to open a business, then this should be an important to apply for an ein immediately. These are business entities like llc, etc.
An individual taxpayer identification number like SSN is important for personal income tax returns on Form 1040.
Open Access
Normally, to get an ein, you can access public records, and business organizations are required to provide their EIN for multiple purposes like business loans or conducting business proceedings with other organizations.
SSN is more confidential and a private number that incorporates strict regulations in terms of the accessibility and usage of SSN. This is because identity theft is an important concern for Social Security Numbers.
Obtaining Process
It is comparatively more easier to acquire an EIN as it can be done through a seamless process by using the IRS website from mail or by smart phone.
A social security number is acquired by the Social Security Administration and requires a complete form SS-5. This can be done either in person or by mail and might require additional documents too.
Final Words
The EIN and SSN provide important identification in terms of the tax ID in the U.S. tax system and look at different endeavors. SSN is more focused on people in terms of tax laws, personal tax, and other aspects like retirement and social security endeavors. The EIN is more important for business tax returns and business finances to identify your business and can be thought of as a business EIN, too. Every business is liable to have an SSN issued by the IRS.
Therefore, it is important to have an EIN and SSN both as both serve different purposes that are important.
GET FREE QUOTE FOR ALL OF OUR SERVICESÂ
Black Ink will send you a free analysis of your current state and what would be the cost of managing either a separate accounting and bookkeeping services or a complete solution across New York, USA. Do get in touch and we will be happy to consult you with our bookkeeping services in NY, New York, USA.