Do you need clarification about the difference between an EIN and an SSN? You should know that in the United States, taxes are done with EIN and SSN numbers. Both are known as tax identification numbers, but they serve different purposes. Here, you will find a clear explanation of how SSNs and EINs are different.
This article can help you figure out which one you need to do business in the US, whether you live there or not. Understanding the differences between the EIN and SSN can be important for business owners and employees for a variety of reasons. So, do not be puzzled!
We’ll discuss the SSN vs. EIN comparison in this article. With our simple guidelines, you can identify the exact justification for why business owners or employees choose to use an EIN instead of an SSN.
So, let’s dive in and explore the exciting world of EINs and SSNs!
What Is an SSN?
The Social Security Number is referred to as the SSN. Basically, the US government gives this unique nine-digit identification number to US citizens and permanent residents. This number comes from the Social Security Administration (SSA). The U.S. government will use this number to keep track of how much you earn, how long you have worked, and whether or not you are eligible for Social Security benefits.
Government agencies, banks, and employers also use your SSN to confirm your identity and keep track of different transactions. It’s important to keep your SSN safe and secure, as it is a key piece of personal information that can be used for identity theft.
Everyone who has the right to work in the United States, regardless of the type of work they conduct, must apply for an SSN to be paid wages or money for self-employment.
Besides getting a job, an SSN is needed to:
- Collect Social Security benefits.
- Apply for the Earned Income Tax Credit.
- Register to vote.
- Register their motor vehicles.
- Open their individual bank accounts.
- Take loans.
- Use other government services.
What Is an EIN?
An EIN number is called a Federal Tax ID number. It is a nine-digit number that separates the identity of a business from the identity of its owner. It’s like a Social Security number (SSN) for your business.
EINs are usually given to businesses like corporations, partnerships, LLCs, and sole proprietorships, but they can also be given to trusts, estates, and nonprofits. Using an EIN instead of the business owner’s Social Security Number is a good way to protect one’s identity.
An EIN has nine digits, just like an SSN. It looks like this: XX-XXXXXXX. Businesses use EINs to pay taxes, get loans, and get licenses. The majority of businesses without employees do not require an EIN. This also includes sole proprietorships and LLCs with a single member. If you own any other kind of business or have at least one employee, you need an EIN.
What’s the Difference Between an EIN and an SSN?
As we start to learn more about SSN VS EIN, here’s a table that shows some of the main differences between an EIN (Employer Identification Number) and an SSN (Social Security Number):
|
Feature |
EIN |
SSN |
| Purpose | Identifies a business. | Identifies an individual. |
| Issued by | Internal Revenue Service (IRS). | Social Security Administration (SSA). |
|
Usage | Used for tax purposes and business identification. | Used for personal identification and tax purposes. |
|
Format | 9 digits with a hyphen (xx-xxxxxxx). | 9 digits with hyphens in a specific pattern (xxx-xx-xxxx). |
|
Obtaining | Apply to the IRS. | Apply to the SSA. |
|
Expiration | EINs never expire unless a business quits operations or its legal structure changes. | SSNs do not expire. |
|
Security concerns | EINs can be shared with others but should be kept confidential to prevent identity theft. | SSNs should be kept confidential to prevent identity theft. |
| Types of entities | EINs are issued to different types of entities, including sole proprietors, partnerships, LLCs, corporations, non-profit organizations, and government agencies. | SSNs are issued to individuals who are U.S. citizens or permanent residents. |
SSNs can only be used for business if the owner doesn’t have to pay taxes separately from the business. This includes sole proprietorships and most single-member LLCs with no employees.
A business that has only one owner, is not set up as a corporation, and has not chosen to be taxed as a separate entity for federal tax purposes is called a “disregarded entity.” Businesses that don’t pay taxes apart from their owners are called “disregarded entities.”
For example, consider any freelance photographer who does not employ anyone. They pay their small business taxes through their personal Taxpayer Identification Number. So, in this case, when you are working as a sole proprietor and are not required to have an EIN.
If your business belongs to a disregarded entity, you need an EIN for tax filing. EINs serve as unique identifiers for businesses that are required to file separate returns from their owners’ personal tax returns.
No matter what kind of business you run, if you have at least one employee or offer certain retirement plans for self-employed people, you need an EIN number. As a sole proprietor, any business owner or entrepreneur can keep using their SSN to pay business taxes until they hire a new worker and their business grows.
Can You Use an EIN Instead of an SSN?
Yes, you can do it, and here’s why. You can use your Social Security number (SSN) to file your personal taxes, even though you should use an Employer Identification Number (EIN) in other places to keep your business safe and organized.
In some cases, an EIN can be used instead of an SSN, depending on the situation and the business structure.
For example, if you are a business owner, you will need an EIN to file taxes and conduct business transactions, such as opening a bank account, applying for a loan, or hiring employees. In this case, you would use your EIN instead of your personal SSN when conducting business transactions on behalf of your business.
However, in most cases, an SSN is still required for personal identification and various transactions, such as applying for credit, obtaining a driver’s license, or filing personal income tax returns.
Can You Use an EIN Instead of an SSN?
Most new business owners or entrepreneurs aren’t sure if their SSN number is the same as their Tax ID number. Basically, a tax identification number is used to file a tax return and is available in different formats. When you run a business as a sole proprietorship or single LLC member, you can use your SSN for your individual and business tax filings. On the other hand, if you operate your business through different entities, an EIN is preferable.
The main difference between an SSN and an EIN is that an SSN is for people, while an EIN is for businesses. So, if you think that the tax identification number is the same as the SSN, it is a misunderstanding. Now, you will find out how business owners can use their SSNs.
- Tax Purposes
SSNs are used to identify businesses for tax purposes. Business owners use their SSNs to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS), which is required for businesses that have employees or are taxed as corporations.
- Credit Checks
When asking for business loans, credit cards, or other ways to get finances, business owners may need to give their SSNs for credit checks. Lenders check the creditworthiness of both the business owner and the business itself using the SSN.
- Employment Verification
Federal law says that employers must use SSNs to make sure their workers can legally work.
- Government Reporting
Government agencies may require SSNs for reporting purposes, such as when filing taxes or submitting payroll information.
- Identification Purposes
SSNs can be used as a form of identification for various business transactions, such as opening a bank account, obtaining a business license, or registering a business with state or local government agencies.
It’s important to note that while SSNs can be useful for certain business purposes, they should be handled with care and kept secure to prevent identity theft or other forms of fraud. On the other hand, business owners and entrepreneurs can use an EIN in numerous ways that help them.
In the United States, one of the first things you need to do to start a business is to get an EIN. You can get an EIN for free from the IRS online, by phone, by fax, or in the mail. But it’s sometimes hard to get an EIN.
FAQs on EIN Vs. SSN
Q1: Is EIN the same as SSN?
Answer: The SSN serves as a person’s tax identity, whereas the nine-digit tax ID serves as a business’s tax identity. Most of the time, a tax ID for a business is called an EIN.
Q2: How do I get an SSN in the USA?
Answer: You must submit an application and present original documents to obtain an SSN for the first time. You can start your application online, but to finish it, you must go to a Social Security office or card center near you.
Q3: Can an individual have both an EIN and an SSN?
Answer: Yes, a person can have both an EIN and an SSN, since they are used for different things. People get an SSN from the SSA so that the agency can keep a record of their Social Security payments. On the other hand, an EIN is a nine-digit number that the Internal Revenue Service (IRS) issues to a business for tax purposes.
Q4: Can a foreigner apply for an SSN in the USA?
Answer: A foreigner meeting certain requirements can apply for an SSN (Social Security Number) in the USA. Generally, to be eligible for an SSN, a foreigner must be authorized to work in the United States by the Department of Homeland Security (DHS), have a job offer, or be self-employed.
Final Thoughts
In a nutshell, both SSN and EIN are important tax identification numbers used in the United States for different categories. An EIN is used to identify a business entity for tax reasons. A business needs an EIN if it has employees, works as a corporation or partnership, or files taxes. On the other hand, an SSN is a personal identification number used for social security and other government services, such as health care, taxes, and credit applications. Getting an EIN from the IRS is necessary if you want to start a business.
