Overview
In the United States, navigating the complexities of tax identification and filing requirements is essential for both individuals and businesses. Key to this process are the Employer Identification Number (EIN) and the Individual Taxpayer Identification Number (ITIN). If you are doing business or earning income in the US, you may need to obtain a tax identification number from the IRS. There are two main types of tax identification numbers: EIN and ITIN. The EIN, issued by the Internal Revenue Service (IRS), serves as a unique identifier for businesses, enabling them to report taxes and handle other financial obligations. On the other hand, the ITIN is designed for individuals who are not eligible for a Social Security Number (SSN) but still need to comply with U.S. tax laws. Understanding the distinctions between these identifiers, the application procedures, and the subsequent tax filing requirements is crucial for maintaining compliance and ensuring smooth financial operations within the U.S. tax system. This guide provides an overview of the registration processes for both EIN and ITIN, along with the essential steps for return filing, offering a comprehensive resource for taxpayers.
What is an Employer Identification Number (EIN)?
For taxation, a unique nine-digit number that the IRS assigns to businesses is an EIN, or Employer Identification Number. It is also known as a Federal Tax Identification Number or a Business Tax ID Number.
A business entity needs an EIN if it:
- Has employees
- Has tax status as a corporation or a partnership
- Is withholding taxes on income paid to non-US residents
- Has certain types of trusts, estates, or non-profit organizations
An EIN helps the IRS identify your business and track your tax obligations and payments.
It also allows you to open a business bank account, apply for business licenses and permits, file employment tax returns, report payroll taxes, and establish business credit.
What is an Individual Taxpayer Identification Number (ITIN)?
IRS issues an ITIN, or Individual Taxpayer Identification Number, a unique nine-digit number to individuals who are not eligible for Social Security number (SSN) but need to file a US federal tax return or claim a tax benefit. An ITIN is also used by foreign nationals who have US income or investments but do not have an SSN. An ITIN helps the IRS identify you as a taxpayer and process your tax return and payments. It also allows you to open a personal bank account, report income from US sources, claim certain tax credits or deductions, and comply with US tax laws.
Which terms are used alternatively for EIN and ITIN Number?
The term “taxpayer identification number or tax id no” (TIN) sometimes gets used interchangeably with EIN (Employer Identification Number):
- EINs are a type of TIN: TIN is a broader umbrella term used by the IRS. It covers various identification numbers for tax purposes, including Social Security Numbers (SSNs) for individuals, Individual Taxpayer Identification Numbers (ITINs) for non-residents, and of course, EINs for businesses and other entities. So, while an EIN is a specific type of TIN, all EINs fall under the TIN category.
- Similar Function: Both EINs and TINs ultimately serve the same core purpose: identifying taxpayers for the IRS. They allow the agency to track income, file tax returns, and ensure compliance. This functional overlap can lead to people using the terms interchangeably, especially in informal settings.
- Other Terms used for EIN: As now we know that EIN is a type of tax id no in the USA, which is also referred to as FEIN, Federal EIN, FED EIN, Federal Employer Identification Number in the USA. All refers to EIN (Employer Identification Number).
- FEIN: Federal EIN, FED EIN, Federal Employer Identification Number all are different ways of saying same thing, that is EIN (Employer Identification Number). However, for official purposes, it’s crucial to use the precise term “EIN” when referring to the business identification number. This avoids confusion with other types of tax identification numbers used by the IRS.
How do EIN and ITIN differ from each other?
EIN (Employer Identification Number) and ITIN (Individual Taxpayer Identification Number) are both used to identify taxpayers and report taxes to the IRS. However, they have 5 different purposes and eligibility criteria. Here are some of the main differences between EIN and ITIN:
| EIN | ITIN |
| EIN is for businesses | ITIN is for individuals. |
| EIN is required for businesses that have certain characteristics or activities | ITIN is required for individuals who do not have and cannot get a SSN. |
| EIN does not expire | ITIN can expire if not used on a tax return for three consecutive years. |
| EIN does not grant any legal status or work authorization in the US | ITIN may allow some non-US residents to claim certain tax benefits or credits. |
| For tax purposes, EIN is used to identify a business | ITIN is used to identify an individual. |
Which tax credits that require an EIN?
If you are a business owner in the US, you may be able to reduce your tax bill by taking advantage of some tax credits that are available to you. These tax credits are based on various criteria, such as the type of business, the number of employees, the benefits offered, and the activities performed. However, to claim these tax credits, you need to have an EIN or Employer Identification Number.
Some tax credits that require an EIN are:
- Employer Credit for Paid Family and Medical Leave: which is a credit for employers who provide paid family and medical leave to their employees. The credit is equal to a percentage of the wages paid to qualifying employees who take leave for certain reasons, such as the birth or adoption of a child, a serious health condition, or a family member’s military service. To claim the credit, employers need an EIN and must file Form 8994, Employer Credit for Paid Family and Medical Leave.
- Work Opportunity Tax Credit (WOTC): which is a credit for employers who hire individuals from certain targeted groups that face barriers to employment, such as veterans, ex-felons, or long-term unemployed. The credit is based on the amount of wages paid to eligible employees during the first year of employment. The credit ranges from $1,200 to $9,600 per employee, depending on the group and the hours worked. To claim the credit, employers need an EIN and must file Form 5884, Work Opportunity Credit.
- Credit for Increasing Research Activities: which is a credit for businesses that engage in qualified research and development activities in the US. The credit is designed to encourage innovation and technological advancement. The credit is equal to a percentage of the excess of qualified research expenses over a base amount, or a simplified alternative calculation. The credit can be claimed by corporations, partnerships, sole proprietors, and other entities that have an EIN and file Form 6765, Credit for Increasing Research Activities⁴⁵.
- Small Business Health Care Tax Credit: is a credit for small businesses who offer health insurance coverage to their employees. The credit is available to businesses having fewer than 25 full-time employees, pay an average annual wage which is less than $50,000 per employee, and pay at minimum 50% of the premiums for qualified health plans offered through a Small Business Health Options Program (SHOP) Marketplace. The credit can be claimed by eligible employers who have an EIN and file Form 8941, Credit for Small Employer Health Insurance Premiums.
Which tax credits that require an ITIN?
Individual Taxpayer Identification Numbers (ITINs) are issued by the Internal Revenue Service (IRS) to individuals who do not have Social Security numbers (SSNs) but are required to file a tax return or pay taxes. Many tax credits are available to taxpayers with ITINs, but some require specific eligibility requirements.
Here are some tax credits that require an ITIN:
- Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC): These credits are available to taxpayers who have qualifying children under 17 years old who are US citizens or residents and have an SSN or ITIN. ITIN filers can claim these credits for their eligible children who have an ITIN. The CTC is a credit of up to $2,000 per qualifying child under the age of 17. The ACTC is an additional credit of up to $500 per qualifying child under the age of 17. To qualify for the CTC and ACTC, the child must be a US citizen or resident and have an SSN or ITIN. The child must also live with the taxpayer for more than half of the year.
- American Opportunity Tax Credit (AOTC): This credit is for qualified educational costs paid for a student for the 1st four (4) years of post-secondary education. ITIN filers can claim this credit for themselves or their dependents who have an ITIN. The AOTC credit is up to $2,500 per student. To qualify for the AOTC, the student must be enrolled in at least half-time at an eligible educational institution and must be working towards a degree or certificate. The student must also meet certain income requirements.
- Other Dependent Credit (ODC): This credit is for a dependent who is not a qualifying child and does not have an SSN but is a US resident and has an ITIN. ITIN filers can claim this credit for their eligible dependents who have an ITIN. The ODC is a credit of up to $500 for a dependent who is not a qualifying child and does not have a SSN but is a US resident and has an ITIN. To qualify for the ODC, the dependent must live with the taxpayer for more than half of the year and must meet certain income requirements.
- Child and Dependent Care Credit (CDCC): This credit is for expenses paid for the care of a qualifying person while the taxpayer works or looks for work. ITIN filers can claim this credit for themselves or their dependents who have an ITIN. The CDCC is a credit of up to 35% of qualified child and dependent care expenses, up to a maximum of $3,000 for one child or dependent and $6,000 for two or more children or dependents. To qualify for the CDCC, the taxpayer must have worked or looked for work for at least one day during the year and must have paid for the care of a qualifying person who is under the age of 13 or who is physically or mentally incapable of self-care.
- Lifetime Learning Credit (LLC): This credit applies to qualified education expenses paid for themselves or their dependents who also have an ITIN. Individuals filing tax returns with an Individual Taxpayer Identification Number (ITIN) are eligible to claim the Lifetime Learning Credit (LLC). In addition to these credits, ITIN filers may also be eligible for other tax credits, such as the Earned Income Tax Credit (EITC) and the Earned Income Tax Credit (Additional Child Tax Credit). Taxpayers with ITINs should consult with a tax professional to determine which tax credits they are eligible for.
When is EIN Required for Business Owners/ Entrepreneurs/ Startup Founders in the USA?
Business owners in the USA need an EIN in the following situations:
- They have employees.
- They operate as a corporation or a partnership.
- They file tax returns for certain activities, such as excise taxes or employment taxes.
- They withhold taxes on income paid to non-US residents.
- They have a retirement plan.
- They file for bankruptcy.
- They are involved with certain types of organizations, such as trusts, estates, and non-profits.
Business owners in the USA also need an EIN if they are a sole proprietor or a single-member LLC and need to file taxes for the business entity. In this case, the business owner needs both an EIN for the business and an ITIN or SSN for himself or herself. Business owners in the USA also need an EIN if they are a partner in a partnership or a member of a multi-member LLC and need to file taxes for his or her share of the income or loss from the business entity. In this case, the business owner needs an EIN for the partnership or LLC and an ITIN or SSN for himself or herself.
Business owners in the USA do not need an EIN in the following situations:
- They have or are eligible for an SSN. An SSN (Social Security Number) is a nine-digit number that the Social Security Administration issues to US citizens and authorized non-citizens. An SSN can be used to identify both an individual and a business entity for tax purposes.
- They do not have any US tax filing or informational reporting requirements.
Some additional benefits of having an EIN:
- It can help to establish your business’s legitimacy and credibility.
- It can make it easier to open a bank account and apply for loans.
- It can help to protect your personal finances.
- It can help to streamline your tax filing process.
When is an ITIN Required for Business Owners/ Entrepreneurs/ Startup Founders in the USA?
An ITIN (Individual Taxpayer Identification Number) is a nine-digit number issued by the Internal Revenue Service (IRS) to individuals who do not have a SSN but need to file a U.S. federal tax return or claim a tax benefit.
Business owners in the USA need an ITIN in the following situations:
- They are resident aliens or foreign nationals or say non-US residents who do not have and are not eligible for an SSN but need to file a U.S. federal tax return or claim a tax benefit.
For example, if the business owner has income from U.S. sources or investments, or is claiming certain tax credits or deductions, they need an ITIN to report and pay taxes.
- They are operating a sole proprietorship or a single-member LLC and need to file taxes for the business entity. In this case, the business owner needs both an ITIN for themselves and an Employer Identification Number (EIN) for the business.
- They are a partner in a partnership or a member of a multi-member LLC and need to file taxes for their share of the income or loss from the business entity. In this case, the business owner needs an ITIN to report their distributive share of the income or loss on Schedule K-1.
The partnership or the LLC needs an EIN to file Form 1065, U.S. Return of Partnership Income.
Business owners in the USA do not need an ITIN in the following situations:
- They have or are eligible for an SSN. An SSN is a nine-digit number issued by the Social Security Administration to U.S. citizens and authorized non-citizens. An SSN can be used to identify both an individual and a business entity for tax purposes. An SSN also serves as a personal ID for various purposes.
- They do not have any U.S. tax filing or informational reporting requirements. For example, if the business owner does not have any income from U.S. sources or investments, or does not claim any tax benefits, they do not need an ITIN to do business in the US.
When to use an ITIN instead of an SSN in the USA?
ITIN stands for Individual Taxpayer Identification Number. It is a nine-digit number issued by the Internal Revenue Service (IRS) to individuals who do not have a Social Security Number (SSN) but need to file a U.S. federal tax return or claim a tax benefit. SSN stands for Social Security Number. It is a nine-digit number issued by the Social Security Administration (SSA) to U.S. citizens and authorized non-citizens.
Generally speaking, you cannot use your ITIN instead of your SSN.
However, there are some cases where you can use your ITIN as a substitute for your SSN, such as:
- Filing your taxes
- Claiming certain tax credits
- Applying for some personal loans
- Opening a bank account in certain states
- Obtaining a driver’s license in certain states
- Applying for government benefits in certain states or for certain programs
Here are some examples of when you should use your ITIN instead of your SSN:
- If you are a non-US resident alien who needs to file a U.S. federal tax return because you have income from U.S. sources.
- If you are a foreign/ non-US residents’ student who needs to file a U.S. federal tax return because you have income from a U.S. scholarship or fellowship.
- If you are a taxpayer who needs to claim certain tax credits, such as the Earned Income Tax Credit or the Child Tax Credit, but you are not eligible for an SSN.
- If you are applying for a personal loan and the lender accepts ITINs.
- If you are opening a bank account in a state that allows ITINs to be used as identification.
- If you are applying for a driver’s license in a state that allows ITINs to be used as identification.
- If you are applying for government benefits in a state or program that allows ITINs to be used as identification.
It is important to note that there are some restrictions and limitations on using an ITIN instead of an SSN. For example, ITIN can’t be used to apply for certain government jobs or to obtain certain types of professional licenses. If you have both an ITIN and an SSN, you should use your SSN for most purposes. Only use your ITIN for tax filing or claiming tax benefits. If you only have an ITIN, you may be able to use it for some limited purposes where an SSN is not mandatory, but you should be aware of the restrictions and limitations of using an ITIN instead of an SSN.
How to apply for an employer identification number (EIN)?
You can apply for an EIN online, by fax, by mail, or by phone (if you are an international applicant). The online application is the fastest and easiest way to get an EIN. You can access the online application on the IRS website.
If you apply by fax or mail, you will need to fill out Form SS-4 and send it to the IRS with the appropriate documents.
You will need to provide information about your business, such as:
- Name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the responsible party who owns or controls the business entity
- Legal name and address of the business entity
- Type of entity (e.g., sole proprietorship, corporation, partnership, LLC, etc.)
- Date of formation
- Principal activity (e.g., manufacturing, retailing, consulting, etc.)
- Number of employees
- You will receive your EIN immediately after completing the online application, or within four business days (fax), four weeks (mail), or at the end of the call (phone).
How to apply for an individual taxpayer identification number (ITIN)?
You need to fill out Form W-7 and submit it to the IRS along with a completed US federal tax return and proof of identity and foreign status. You can also apply through an IRS-authorized Acceptance Agent or a Certified Acceptance Agent. Some of the documents that can be used to verify your identity and foreign status are:
- Passport
- National ID card
- Birth certificate
- Driver’s license
- Visa
You can apply by mail, in person at an IRS Taxpayer Assistance Center, or through an agent. The mail option is the most common way to apply for an ITIN. You can mail your Form W-7, tax return, and documents to the IRS address shown in the Form W-7 instructions. If you apply in person or through an agent, you can avoid mailing your original documents. The IRS will process your application and issue your ITIN within seven weeks if you qualify, and application is complete. IRS will post you a letter with your ITIN number.
Conclusion
EIN and ITIN number are two types of tax identification numbers in the US. They are both issued by the IRS and used to identify taxpayers and report taxes. However, they have different purposes and eligibility criteria. EIN is for businesses and ITIN is for individuals. You can apply for an EIN or an ITIN online, by fax, by mail, or by phone, depending on your situation. You will need to provide information and documents about your business or yourself, depending on the type of number you are applying for. You will receive your EIN or ITIN from the IRS within a few weeks after completing your application.
Disclaimer: The information provided on this blog is for general awareness and informational purposes only. It is not intended to be a substitute for financial, legal, or/and professional advice. The author of this blog is neither a financial expert nor a lawyer, and the content of this blog should not be relied upon as financial, legal, or/and professional advice. If you have any specific legal questions or concerns, you should consult with a competent professional.