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Confused about tax identification numbers?

Posted on December 29, 2017

There are three different kinds of federal identification numbers used for identity purposes related to preparing federal and state income tax returns:

  • Social Security Number (SSN)
  • Employer Identification Number (EIN)
  • Individual Taxpayer Identification Number (ITIN)

Here’s how to understand the difference among them so you’ll know which one you need:

If you are a U.S. citizen, your Social Security Number is assigned to you very early in life, and used throughout your life as a personal identifier for banking, for tracking income, and for Social Security benefits, as well as for filing personal federal and state income tax returns.

A Federal Tax ID Number, known as an EIN, is an identification number used by the IRS to administer tax laws and identifies an entity to the IRS, banks and other businesses. You could think of this number as a sort of “social security number for a business.” This number is typically needed to operate a business in the United States, including banking, hiring employees, and filing taxes with the IRS. Unlike a SSN, you may occasionally need a new EIN.

You will need a new EIN if you:

  • File bankruptcy under Chapter 7 (liquidation) or Chapter 11 (reorganization)
  • Incorporate
  • Are a sole proprietor and take in partners and operate as a partnership
  • Establish a pension, profit sharing, or retirement plan

You do not need a new EIN if you:

  • Change the name of your business
  • Change or add a location (stores, plants, enterprises or branches of the entity)
  • Operate multiple businesses (including stores, plants, enterprises or branches of the entity)

 What is an ITIN?

The individual taxpayer identification number (ITIN) is a tax number available to certain non-U.S. residents and resident aliens and their spouses and dependents who are not able to obtain a social security number (SSN).

  • ITINs always start with a “9” and are typically formatted like a Social Security number: 9xx-xx-xxxx
  • The ITIN is needed by many non-US residents who form a Delaware corporation or LLC
  • If there is a tax-filing requirement with the IRS, an ITIN is needed
  • ITINs are issued regardless of immigration status because both resident and non-resident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code

Check to be sure whether your ITIN is expiring at the end of 2017. In general, if your ITIN has middle digits of 70, 71, 72 or 80, you need to renew. Failing to renew your ITIN December 31st will cause refund and processing delays when you file your personal tax return in 2018.

When it comes to understanding numbers, the CPAs at Teipen Selanders Poynter & Ayres are here to help you with just about any kind of business, personal or tax-related number issue out there. You might say we’re the numbers experts!