EIN vs. ITIN vs. SSN: What’s the Difference?

EIN vs. ITIN vs. SSN. It’s safe to say that if someone is not an entrepreneur, they probably only know the definition of the last acronym in that trio. As a business owner, you, on the other hand, are likely more than familiar with all three terms.

Most small business owners have an employer identification number (EIN), an individual taxpayer identification number (ITIN), and a social security number (SSN). This allows the IRS to identify and account for their business entities. Obtaining these numbers also ensures individuals remain in compliance with tax laws in the United States.

What these numbers are not, however, are identical copies of one another. Let’s take a closer look at the definition of each federal ID, what it is used for, and why an entrepreneurs needs one to conduct business.

Social Security Numbers (SSNs)

What Is a Social Security Number?

A social security number (SSN) is a nine-digit number issued to United States citizens and permanent residents. Over the course of one’s lifetime, the U.S. government will use this number to track your earnings and years employed. Once you are ready to retire, this number will be used by the U.S. government to determine the amount of social security benefits you receive.

Social security numbers were originally created in 1936 with cards issued to their owners in 1972. Added measures would be taken in later years to prevent against the card’s alteration and forgery. In 1983, under Section 205(c)(2)(G) of the Social Security Act (SSA), it was stated that social security cards would be made with bank-note paper and could not be counterfeited.

SSNs protect a great deal of your personal information. As such, they are also susceptible to potential identity theft. It’s important to guard this number closely, or consider getting another, less sensitive federal ID as an added precaution. We’ll talk a little more about that in a moment.

What Can Business Owners Use SSNs For?

Before you owned a small business, your SSN played a key role for getting hired for new jobs or even obtaining a driver’s license. What can you use a social security number for as a small business owner?

• Opening bank accounts: This is a requirement for both business and personal bank accounts at U.S. financial institutions. You may also use an employer identification number to open a business bank account.
• Federal loan applications: Many entrepreneurs seek federal loans for extra small business funding. This number is used to run a credit check and determine if you are eligible for a federal loan.
• Filing annual tax returns: You may use an SSN or an EIN on these documents.

What Else Should Business Owners Know About SSNs?

U.S. residents typically do not need to worry about obtaining a SSN since they have already been issued one by the SSA. What they do need to consider is taking action to safeguard these numbers. It may be in their best interest to obtain an EIN next.

Employer Identification Numbers (EINs)

What Is an Employer Identification Number?

An employer identification number (EIN) is a nine-digit number issued by the IRS to identify a business entity. Once you have applied for an EIN, you may use this federal tax ID to legally identify your business. You may also continue using your SSN, too.

What Can Business Owners Use EINs For?

The uses for an EIN are numerous for entrepreneurs. Here are a few of the benefits to having (and using) an EIN to benefit your business.

• Opening a business bank account: An EIN is required by most U.S. financial institutions before opening a business bank account.
• Forming an LLC and hiring employees: The IRS advises that limited liability companies (LLCs) file for an EIN. Why is that? If an LLC has hired employees, or intends to hire, they are required to have an EIN. What happens if you’re not planning to hire or have hired employees? Once the business has been incorporated, you are technically considered an employee. Therefore, you must have an EIN so that the IRS may track your business and ensure it remains in compliance.
• If you decide to change your organization type: For example, if your business entity is changing from a single-member LLC to a member managed LLC, you would need to fill out Form 8832 Entity Classification Election. This allows the entity to retain its EIN even though its federal tax classification has changed.
• If you plan to establish business credit: This credit will be different from that of your personal credit—it’s based on your business spending history and vendor relationships, among other factors.  
• Establishing pension, profit sharing, and retirement plans: If you decide to create these plans, you are considered to be a plan administrator and will need an EIN.
• Filing employment, excise, alcohol, tobacco, or firearm taxes.

Why Should Business Owners Obtain An EIN?

Did you know that once you have an EIN, it never expires? That’s just an added perk to obtaining this federal tax ID. Beyond the lack of expiration date, an EIN is also critical to safeguarding your SSN. You may use it in lieu of your SSN on various official documents pertaining to your business.

That being said, however, it’s important to protect your EIN just as much as you would an SSN. An EIN is still susceptible to identity theft, so be careful not to leave it written in plain sight where someone might see it.

Individual Taxpayer Identification Numbers (ITINs)

What Is an Individual Taxpayer Identification Number?

Let’s say you are an individual (who may be either a U.S. resident or nonresident alien) that needs a U.S. taxpayer ID number. You are in a situation where you are required to file a U.S. tax return or present that you have a federal tax ID. However, you don’t have an SSN and aren’t eligible for one either. For circumstances like these, the IRS will issue an individual taxpayer identification number (ITIN) to individuals that have applied for ITINs.

What Can Business Owners Use ITINs For?

An ITIN only has a few purposes, most of which center around staying in compliance with U.S. tax laws. According to the IRS, the shortlist of things one cannot do with an ITIN includes the following.

• Having an ITIN does not mean you are authorized to work in the United States.
• You will not be eligible for social security benefits just because you have an ITIN.

Why Should Business Owners Obtain an ITIN?

The only real purpose that an ITIN provides entrepreneurs is federal tax reporting. These numbers do not serve any other purposes for entrepreneurs. This is still an important function to ensure your U.S. tax returns have been filed, so if you know you need an ITIN it is recommended that you apply for the number as quickly as possible.

EIN vs. ITIN vs. SSN: The Bottom Line

Now that you have a thorough understanding of each of these terms, take a look at each one to determine which your business—and you as its owner—requires. If you are still unsure, consult with an attorney or accountant for additional assistance.

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