Tax ID Numbers- Different Types In The USA
Whether you are a business owner with employees or a sole proprietorship with no other employees, operating in the United States of America would require you to file your returns. You need Tax ID numbers or TIN when you pay taxes to the Internal Revenue Service (IRS). There are millions of businesses registered in the USA. There needs to be a unique identification mechanism to regulate them and ensure that they pay their dues to the IRS.
For this purpose and more, the United States of America provides a 9-digit unique string of numbers. Depending on the size of a business ( a sole proprietor or a company with employees), there are three TIN types. Read on to find out more about the types, their application, and the process to obtain them.
What are the Different Categories of Tax ID Numbers?
For all taxation purposes, different US government organizations provide three types of tax IDs –
- A Social Security Number (SSN)
- An Individual Taxpayer Identification Number (ITIN)
- An Employer Identification Number (EIN)
If you have a business with employees, you need the EIN as your tax ID. However, if you are an individual, SSN or ITIN can be used. Although, if you intend to grow your business and have employees someday, you may want to apply for an EIN beforehand.
The cost of applying for any of these Tax ID numbers is practically nothing, and when you do begin to grow, you would be ready to employ at will.
Here is a little more detail about each of the types for your understanding –
What is the Social Security Number (SSN)
It is the only personal ID that the Social Security Administration or SSA provides to American citizens. Along with citizens, the Social Security Number applies to permanent residents and non-immigrants with temporary work visas. You can procedure this as a tax ID and file business taxes if you operate as a single-person Limited Liability Company or a business without any employees.
Tax ID numbers like Social Security Number has several other applications, apart from filing taxes. Whether you want to open a bank account, get employed by an organization, apply for a passport or even rent an apartment, you will need the SSN to conduct a background check, credit score check, and more.
What is the Individual Taxpayer Identification Number (ITIN)
Coming to the next type of tax ID, the Individual Tax ID Number. The Internal Revenue Services (IRS) issues this ID to those who fall under any of the following categories.
- They are not US citizens and do not have a green card or substantial presence test pass report (non-resident aliens).
- They are born outside of America but reside in the US (resident aliens).
- They are dependent family members or the spouse of either a non-resident alien or a resident alien.
Unlike the other Tax ID numbers like SSN, ITIN, an ID number, is used solely to pay taxes. However, kindly note that you will not get the same benefits as an SSN if you only have your ITIN. You will need to fill out the W7 form to get your ITIN.
What is the Employer Identification Number (EIN)
When growing your business and adding employees to your company, the first you need is the EIN. Any business which employs or intends to employ an additional workforce has to apply for EIN before they can legally hire employees.
There are multiple benefits of having a valid EIN, even outside of tax payment purposes. These include opening a bank account, applying for business licenses and permits, and seeking business loans. Additionally, any company with employees needs to report and pay their federal payroll taxes, another place where they need their Tax ID numbers.
Before doing any business in America, it is essential that you understand how their tax system works and you fall under which of the three types of Tax ID numbers. Here's hoping this blog helped you get a fair understanding of the different IDs and when you should apply for one.