Difference between ITIN and EIN

As a business owner, you need to know the different kinds of identification that can be used for different business purposes. You could be filling out a form where you are asked for your personal or business tax identification number. There are actually many numbers that can be used for tax identification, and you need to know which is right for your business. Here we’ve discussed two of them.

What is a taxpayer identification number?

A Taxpayer Identification Number is a generic term that the Internal Revenue System (IRS) uses in order to identify businesses or individuals to track their purchases. However, that is not the only purpose – often they are used for various other things to identify a business or an individual, such as when opening a business bank account.

There are 3 general types of taxpayer ID number, two of which are discussed here:

  • SSN (Social Security Number)
  • EIN (Employer Identification Number)
  • ITIN (Individual Tax Identification Number)

What is an EIN?

An EIN, also known as a Federal Employer Identification Number (FEIN), or a Federal Tax Identification Number (FTIN), is an identification number that’s like having a SSN for your business. It’s used by the IRS to administer tax laws, and also helps to identify an entity to the IRS, banks and other businesses. The IRS also uses it to keep track of a business’ tax reporting.

What can you do with an EIN?

Many businesses choose to get an EIN, because although the primary purpose is for tax purposes, having an EIN also allows you to do these other things:

  • Open a business bank account
  • Hiring employees
  • Maintaining your corporate veil: (the corporate veil protects business owners from personal liability for the business’ debts) 
  • Help you prevent identity theft

Who needs an EIN?

You’ll require an EIN if any of these apply to you:

  • You have employees
  • You operate as a corporation or a partnership
  • You file one of these tax returns: Excise, Employment, Alcohol, Tobacco and Firearms
  • You withhold taxes on income paid to a non-resident alien
  • You have a Keogh plan

What is an ITIN?

The ITIN is a 9 digit tax processing number, that is issued to individuals who are required to have a U.S. tax identification number, but who don’t have, or aren’t eligible, for an SSN. It ensures you are compliant with tax laws, while also letting the IRS to efficiently process and account for your taxes.

What can you do with an ITIN?

Unlike the EIN, where the identification number allows you to do a lot more than file taxes, there isn’t much you can do with an ITIN – it can only be used to file federal taxes. It provides a means to efficiently process and account for tax returns and payments for those not eligible for SSNs, regardless of immigration status. Their sole purpose is file reporting.

An ITIN does not:

  • Authorise work in the U.S.
  • Provide eligibility for Social Security Benefits
  • Qualify a dependent for earned income tax credit purposes

Who needs an ITIN?

You’ll need an ITIN if one of the following applies to you:

  • You don’t have an SSN and are not eligible for one
  • You are required to file a federal tax income return
  • You are one of the following: non-resident alien, U.S. resident alien, dependent or spouse of a U.S citizen/ resident alien/ a non-resident alien visa holder

 

On paper, an EIN and ITIN seem quite similar – both are numbers used for identification purposes. However, there are key differences between them. An EIN can be used for a business, whereas an ITIN is for a person, and whilst both an EIN and ITIN can be used for file reporting, with an EIN a business can do so much more than this – with an ITIN it stops there.

 

TRUiC has a whole guide on EINs with lots of helpful information. Learn more on their website.

Alex Hamilton