Individuals and business owners in the United States often use multiple ID numbers for different purposes. Two crucial ones are the Individual Taxpayer Identification Number (ITIN) and the Employer Identification Number (EIN).
Anyone engaged in American business or financial operations should know these figures’ variations.
The IRS grants the EIN and ITIN for distinct reasons, and they serve different functions. For those seeking an ITIN, resources like GetITIN.pro can be helpful.
This post will discuss EINs and ITINs together, along with their uses and reasons for importance for people and company owners.
What is an EIN?
Originally known as a Federal Tax Identification Number, an Employer Identification Number (EIN) is a special nine-digit number assigned to American companies by the IRS.
This number identifies a company and is essential for tasks like creating company bank accounts, filing tax returns, and applying for business licenses.
For companies, it functions like a Social Security Number (SSN). Any company that employs people, runs as a corporation or a partnership, or files certain tax returns needs an EIN.
What is an ITIN?
The IRS assigns nine-digit Individual Taxpayer Identification Numbers (ITIN). These numbers are intended for those individuals who need to file U.S. tax returns or engage in tax-related activities but do not hold a Social Security Number (SSN).
For non-resident aliens, their wives, and dependents not qualified for an SSN, the ITIN is only for federal tax reporting; ITINs cannot be used for anything like Social Security benefits or altering immigration status.
Key Differences Between EIN and ITIN
- Purpose: The primary difference is their purpose. An EIN is for businesses; an ITIN is for individuals who need to pay taxes but are not qualified for an SSN.
- Eligibility: Any business entity—including single proprietors, partnerships, companies, and non-profit organizations—may apply for an EIN. Only those without eligibility for an SSN may access ITINs.
- Application Process: The EIN application procedure is usually faster and can be completed online, by fax, or by mail. Getting an ITIN may be more difficult, as Form W-7 must be sent in along with tax records and evidence of identification.
- Usage: EINs are used for many business-related purposes, including filing taxes, recruiting staff, and setting company bank accounts. ITINs, which are not a replacement for a work permit, are used mostly for tax filing.
Applying for an EIN
Obtaining an EIN—Employer Identification Number—is simple online, by mail, fax, or phone.
Applying on the IRS website is the fastest approach; you may complete the form and have your EIN immediately.
Applying requires providing details about your company, like its legal name, location, and kind of business it is. Upon processing your application, the IRS will assign you an EIN for use in taxes and other business operations.
Applying for an ITIN
Seeking an ITIN differs from obtaining an EIN. Those seeking an ITIN must complete IRS Form W-7, often called the Application for IRS Individual Taxpayer Identification Number.
Like a passport or national ID card, this form requires documentation proving the person’s identity and foreign status.
Following completion of the form and documentation gathering, the form may be forwarded to the IRS by mail, personally to IRS Taxpayer Assistance Centers, or turned over to an IRS-authorized Acceptance Agent. An ITIN application typically takes six to eight weeks to complete.
Why Businesses Need an EIN
For a few significant reasons, companies require an EIN.
First, tax filing requires it. The IRS employs the EIN to track the company’s tax obligations and payments. A company cannot pay or submit its federal tax returns without an EIN.
Second, employing people demands for an EIN. Companies require it to record employment taxes and provide their staff with the correct documentation.
Third, opening a business bank account often requires an EIN. Banks ensure the company respects federal regulations and verifies its identification using the EIN.
Why Individuals Need an ITIN
If one does not qualify for an SSN but still must do other tax-related chores or submit a U.S. tax return, one needs an ITIN.
For instance, non-resident aliens who make money from the United States have to obtain an ITIN to submit their tax returns. Likewise, resident aliens who must file a tax return without an SSN will require an ITIN.
Additionally, an ITIN is needed for dependents or spouses of U.S. citizens or permanent aliens who are not qualified for an SSN. The ITIN ensures these people satisfy their tax obligations and respect American tax rules.
Renewing an ITIN
Once granted, an EIN ( Employer Identification Number) never expires. Conversely, an Individual Taxpayer Identification Number (ITIN) has to be updated often.
An ITIN expires three years if not utilized on a federal tax return three times running.
Renewal of an ITIN requires filling out Form W-7 and submitting the necessary documentation. Usually it takes six to eight weeks.
Importance for Non-U.S. Residents
Non-U.S. citizens especially need to know the difference between an EIN and an ITIN.
Non-resident aliens doing business in the United States or getting income from American sources have to follow U.S. tax rules.
Their situation can call for either an EIN or an ITIN. A non-resident alien who owns a business in the United States, for example, will require an EIN for the company; a non-resident foreigner who makes income from U.S. investments could need an ITIN to submit their tax returns.
Knowing which number to apply for and how to utilize it will let non-US citizens fulfill their tax responsibilities and stay free from fines.
Conclusion
Simply said, the EIN and ITIN are two numbers the IRS provides for distinct purposes.
The EIN identifies companies and is required for activities like paying taxes, employing employees, and opening company bank accounts. Those who must file U.S. taxes but cannot get an SSN are assigned an ITIN.
Business owners and people should be aware of these variations in numbers and their applications to remain compliant with U.S. tax rules. This simplifies tax management and helps one avoid legal issues.