How Does an SSN Differ From a Tax ID?

A social security number (SSN) is a tax code used by an individual, while a tax ID is a nine-digit tax code for a business entity. For a business entity, a tax ID is usually called an EIN. Just like an individual uses their social security number to uniquely identify themselves on their tax paperwork, a business entity uses it in the same way. It is a unique way for a business to be identified by the IRS on their tax forms.

To file taxes as a business instead of an individual, a tax ID is required. A tax ID number is necessary for tax forms and when business owners open a business account through a bank. Sometimes, suppliers and customers also need it to create an account with the business.

Small business owner are sometimes unsure if they need a tax ID number. Almost all businesses need a tax ID number. Also, if a small business is associated with certain organizations, it may be required to apply for a tax ID. Here are some examples of those associated organizations:

  • Non-profits
  • Farmers’ cooperatives
  • Certain types of trusts

However, not every business entity needs a tax ID number. An exception is a sole proprietor with no employees and no plans to hire employees. In this case, the sole proprietor can use their own personal social security number as a tax identification number because the person and the business are the same. Sole proprietors who do plan on hiring employees or have already hired employees are required to have a tax ID number, however.

If you own a business, chances are you will need a tax ID  in order to file taxes as a business as opposed to an individual. There are some exceptions, like some sole proprietors, but most fall under the category that requires a unique business identification code. You can easily get your tax ID through GovDocFiling. Click here to start!

ITIN Tax IDs

Although EINs and social security numbers are the types of tax IDs most discussed, there is a third type: individual taxpayer identification number, also known as ITIN. This is also a nine-digit number provided to individuals for taxpaying purposes. However, it differs in one main way: it is for those who are ineligible for social security numbers, which are generally immigrants or foreign nationals. Generally, this includes:

  • Dependents or spouses of a non-resident alien holder of a visa
  • Spouses or dependents of a resident alien or U.S. citizen
  • U.S. resident alien not eligible to obtain a social security number
  • Non-resident alien not eligible to obtain a social security number

Having an ITIN does not allow one to work; its purpose is for foreigners to file income taxes as required by law. An example might include a foreign individual that conducts business on U.S. soil that must file income tax on this business. Because this individual does not have a social security number, he or she will need to file for an ITIN instead in order to then file a tax return. However, businesses filing taxes in the U.S., even if their headquarters are abroad, will still have an EIN rather than an ITIN.

Format of a Tax ID

Tax IDs are nine digits long, but each category has a different format. A social security number will have the format of three numbers, a dash, two numbers, a dash, and the final four numbers, so it looks like XXX-XX-XXXX. An EIN number still has nine digits, but it follows a format that has two numbers, a dash, and the seven other numbers. It will look like XX-XXXXXXX. An ITIN will follow a similar format to a social security number, except it will always start with 9, and the second set of numbers in the range of 70-99.

Basically, the difference between a tax ID and social security numbers is the type of entity that applies for them. Businesses apply for EIN, while individuals use social security numbers, other than certain immigrants and foreign nationals who use an ITIN.

If you own a business, chances are you will need a tax ID in order to file taxes as a business as opposed to an individual. There are some exceptions, like some sole proprietors, but most fall under the category that requires a unique business identification code. You can easily get your tax ID through GovDocFiling. Click here to start!

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