A tax identification number (TIN) is a unique identifier assigned by the government to individuals and businesses for tax purposes. They are required for financial transactions and complying with tax obligations.
Types of TINs and Issuance
There are different TINs:
- Social Security Number (SSN)
- Individual Taxpayer Identification Number (ITIN)
- Employer Identification Number (EIN)
The Social Security Administration (SSA) issues Social Security numbers. The Internal Revenue Service (IRS) issues all other TINs, and they are necessary when filing taxes or communicating with the IRS.
Application and Uses
TINs consist of 9-12 digits. The first nine digits identify the taxpayer, and in the case of businesses, the last three digits can identify a branch code. Applying for a TIN is free.
For most individuals, your tax ID is your Social Security number. However, businesses have separate numbers through an Employer Identification Number (EIN). Those ineligible for Social Security numbers get issued an Individual Taxpayer Identification Number (ITIN). Additionally, states can issue tax IDs as well.
What is an EIN?
An employer identification number (EIN) identifies businesses for tax purposes and serves like a Social Security number for companies. It’s necessary for corporations, partnerships, and limited liability companies. Sole proprietors can usually use their SSNs unless they hire employees or meet other criteria requiring an EIN.
Applying for an ITIN
An ITIN is for nonresident and resident aliens, who cannot obtain a Social Security Number. ITINs are 9-digit numbers that start with the number 9. To apply for an ITIN, one must complete Form W-7 to substantiate their foreign status and identity.
Conclusion
The IRS assigns a unique tax identification number to individuals, corporations, and nonprofits. These numbers are included on tax documents and used when claiming government benefits. Lenders also require these numbers on loan applications. It’s crucial to understand whether to use an SSN or an EIN based on your status as an individual taxpayer or a business entity.