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EIN vs TIN: What’s the difference and why it matters

Thursday, September 08, 2022

As a small business owner, do you need a TIN or an EIN? We break down the differences so you can make the best choice for your business.

To paraphrase Benjamin Franklin, nothing is certain except for death and taxes.

As a small business owner, filing tax returns probably isn’t a favorite task on your to-do list. And that to-do is on your list twice — because business owners are responsible for filing an individual tax return too. As a result, the Internal Revenue Service (IRS) may assign various tax ID numbers to you. Do you know which you use and when?

If not, read on. We’ll take a look at the common types of tax ID numbers and focus on EIN vs TIN, the two you’re most likely to deal with as a business owner.

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What is a tax identification number (TIN)?

A tax identification number - commonly known as a TIN - is a number used to identify a person or business entity on tax returns. The IRS uses TINs to administer US tax laws. They also require business owners to include TINs on tax returns, statements and other tax forms and documents.

The IRS issues several types of TINs, with each number serving a specific purpose when used for filing tax returns and more. A TIN can be a/an:

  • Social Security number (SSN): This is the most commonly used TIN for tax purposes. Unlike all other TINs that are issued by the IRS, SSNs are issued by the Social Security Administration (SSA).

  • Employer identification number (EIN): This federal tax ID number identifies a business entity — more to come on this below!

  • Individual taxpayer identification number (ITIN): This taxpayer ID number is for folks who are ineligible for other TINs, including certain nonresident aliens and resident aliens, their spouses and dependents who are ineligible for a SSN.

  • Taxpayer identification number for pending US adoptions (ATIN): This temporary adoption taxpayer identification number is issued by the IRS to people in the process of legally adopting a US citizen or resident child but can’t get a SSN for the child in time to file their tax return.

  • Preparer taxpayer identification number (PTIN): This TIN is used by paid tax preparers as an identifier for the tax returns they prepare. Using a preparer taxpayer identification number is an IRS requirement for folks who are paid for preparing all — or the majority — of any federal tax return or claim for refund. Think certified public accountants (CPAs) and licensed tax preparers. You won’t need to use a PTIN if you’re filing for yourself through one of the many popular online, do-it-yourself tax services.

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What is an employer identification number (EIN)?

Sometimes TIN and EIN are used interchangeably — but as you now know, TIN numbers exist for many situations. Calling an EIN a TIN would be technically true — but it doesn’t tell the whole story. An employer identification number (EIN) is a nine-digit number issued by the IRS to business entities in the US — so it’s also known as the Federal Employer Identification Number (FEIN) or Federal Tax Identification Number (FTIN).

An EIN number is used for filing a business tax return and basically functions like a Social Security number for a company. And it’s important. Business owners need one to complete a lot of crucial tasks, including: opening a business bank account, applying for licenses or permits, opening a merchant account to accept credit cards, hiring employees, and applying for business loans. Getting an EIN for your business also helps kickstart the process of establishing business credit.

An EIN can be issued to employers, corporations, non-profits, sole proprietors, partnerships, trusts, estates of deceased individuals, governmental agencies and business entities.

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Do I need an EIN?

It depends. Not every business owner needs an EIN. If you operate as a sole proprietorship or limited liability corporation (LLC), you can file taxes with the number on your Social Security card — provided you don’t have anyone on your payroll.

Sole proprietorships aren’t separate from the business owner, since they technically don’t have their own legal identity. That’s why a sole proprietor can file taxes using their Social Security number.

LLCs are a different story. While an LLC has a legal identity of its own, it does not have a separate tax identity. This is because income flows through an LLC like it does within a sole proprietorship. So without any employees, an LLC business owner essentially operates as a sole proprietor and can use their Social Security number when filing taxes. That said, creating an LLC if you’re a one-person show can help lessen the risk to your personal finances if things go south.

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How do I get an EIN?

You can obtain an EIN for free, online through the IRS website. Your business must be located in the US or US territory and the person applying must have a valid TIN (SSN, ITIN).

OK, so EIN vs TIN — which do I use?

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An EIN is a type of TIN but not vice versa: Think of the TIN as a parent and the EIN as a child. So, a TIN is required for filing taxes or claiming certain benefits. Whether you use a SSN, EIN or ITIN will come down to the circumstances. Are you filing your personal taxes? You’ll need to use a TIN — usually your SSN or ITIN. If you’re filing your business’ taxes as an LLC with four employees? You’ll probably use an EIN.

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