When it comes to taxation in the US, there are different numbers that the state uses to identify people. These include Social Security Number (SSN), Employer identification number (EIN), Tax Identification Number (TIN), and others. The following information will elucidate the two types of identifiers to show the major differences between EIN vs TIN.
The Internal Revenue Service uses these numbers to track taxpayers. EIN and TIN stand out and TIN can be used in place of EIN in some cases – this is where the confusion sets in for some people.
The TIN (Taxpayer Identification Number) comes in different forms, which includes the EIN, and has a broader range of applications. Therefore while TIN can be used in place of EIN, EIN cannot always be used in place of TIN.
What Is a TIN?
A Tax Identification Number (TIN) is a unique set of nine-digit numbers that the Internal Revenue Service (IRS) uses to track individuals, corporations, and other entities. The TIN serves as a means of identification, also known as the Taxpayer Identification Number.
The TIN is mandatory for every individual in the US as it is a requirement for anyone filing annual tax returns with the IRS. In addition to this, in order to access any benefits or services from the U.S government, an individual must provide their TIN. If they are found to be inconsistent with tax obligations, they will most likely be denied such benefits or services.
What other purposes does a TIN serve?
Businesses that have employees require an SSN from the employment applicants as a means of identification.
For individuals applying for loans, banks and other lenders also require an SSN to verify the identity of the individual with the credit bureau. This also allows them to access the person’s credit history and score as a consideration for granting credits.
- State Agencies
For a business to operate in a state it needs the authorization of the state tax agencies, and the TIN is one of the requirements for filing with the state tax agencies.
Types of Taxpayer Identification Number
Taxpayer identification numbers come in several different forms which include:
- SSNs: Social Security Numbers are assigned to Individuals
- EINs: Employer Identification Numbers are assigned to businesses such as corporations and partnerships
While these two are the major forms of TIN, other types of TINs include
- Individual Taxpayer Identification Number (ITIN)
- Adoption Taxpayer Identification Number (ATIN), and
- Preparer Tax Identification Number (PTIN).
All these have different uses and depending on what the situation is, one may be preferred over the other.
What is an EIN?
EIN stands for Employer Identification Number. It is a unique nine-digit number that the Internal Revenue Service (IRS) uses to identify businesses operating in the state. The EIN is also known as the Federal Tax Identification Number or a Federal Employer Identification Number (FEIN).
Aside from being a means of identification for businesses, EIN is also an essential document for opening a United States account and a company needs an EIN to get permits and licenses that the business needs to operate and handle employees’ payroll.
The EIN can also be taken as a Taxpayer Identification Number in a case where it serves as a means of identification instead of reporting employment tax. The name EIN is used most often in instances of employment tax reporting.
Whether for business identification, getting permits and licenses, opening an account, or handling employee payroll, the essence of an EIN is to ensure consistent tax payment. The number, therefore, is not meant for any other purpose apart from tax administration.
EIN Tax Considerations for Businesses
When it comes to identifying taxable businesses, EIN is limited to the sole proprietor and limited liability corporations that do not have employees. Alternatively, these businesses can use the owner’s social security number (SSN) to fill in their taxes.
A sole proprietorship doesn’t exist separately from its owner, therefore the owner can use their personal SSN to file taxes. An LLC that does not have employees, although a separate legal entity in the eyes of the law, operates a pass-through taxation system. The owner reports his or her income on their personal tax return.
EIN vs TIN – Is EIN the Same as TIN?
While both EIN vs TIN is used for tax identification and reporting purposes, the difference lies in where or when a particular number can be used. One can use a TIN in place of an EIN since TIN is like a parent identification number, but not the other way round.
Also, EIN is a type of TIN that applies to businesses that have people working under them. This means that a sole proprietorship or LLC with no employees needs a TIN rather than an EIN to operate while a corporation will require an EIN.
However, a sole proprietor who files pension or excise tax returns is under a legal obligation to obtain an EIN.
So, the key difference between the two is that while EIN is used to identify taxable individuals in the United States, EIN is used for identifying companies. In summary:
- While TIN applies to various situations that require an identity number, an EIN is used solely by U.S residents or those filing business taxes.
- A TIN, whether an EIN, SSN, or ITIN, must be provided for filing taxes or when claiming certain state benefits.
- Importantly, in comparing TIN vs EIN, EIN is a type of tin used for reporting tax. A TIN covers a broader definition for numbers for tax identification and reporting purposes.
The difference between EIN vs TIN is arguably slight, that’s why they are often used interchangeably. The use of the two numbers is dependent on what form an individual or corporation is filling out. A TIN covers a variety of tax numbers, and so can be used when these numbers are requested but it may not be possible to replace TIN with EIN.
Hopefully this guide has helped you to understand the difference between EIN vs TIN in 2024