Federal and state governments use tax identification numbers to identify people and businesses on their tax forms, information returns, and other official documents.
As a startup founder, you’ll encounter several kinds of these ID numbers as you run and scale your business. That’s why it’s crucial to know the difference between the most common ones used in the US: SSNs, EINs, and ITINs.
Read this blog post to learn all this and more, including:
- What is a Social Security number?
- What is an Individual Taxpayer Identification Number?
- What is an Employer Identification Number?
- SSN vs. ITIN vs. EIN: What’s the difference between these tax identification numbers?
- How are these tax identification numbers relevant for your startup?
- Managing your startup’s admin work is easier than ever with Warp
What is a Social Security number (SSN)?
A Social Security number (or SSN for short) is a nine-digit tax identification number that follows the format XXX-XX-XXXX. The Social Security Administration (SSA) issues it to US citizens and authorized residents, which include permanent residents, international students, and foreign nationals who are temporarily in the US for business purposes.
The SSA uses this ID number to track a taxpayer’s employment history, earnings, and benefits. Since it’s also used to verify your identity, the SSA recommends keeping your SSN confidential. This can complicate matters for some business owners, as we’ll see later in this blog post.
What can founders use SSNs for?
Social Security numbers are the most common type of tax identification number used by individuals in the US. But because they’re used to identify people, rather than companies, their uses from a business perspective are somewhat limited.
Generally, only companies that are structured as sole proprietorships or single-member limited liability companies (LLCs) are allowed to use the business owner’s SSN in a business capacity.
So, if your startup is structured as one of these entities, here are some ways you might use your SSN in your business operations:
- Opening a business bank account: Although many financial institutions require an EIN to open a business bank account, some banks allow sole proprietorships and single-member LLCs to open one with their SSN.
- Filing personal tax returns: Startup founders who are US citizens or authorized residents will use their SSN to file their personal tax returns (and if you’re operating as a sole proprietorship or LLC, you’ll file your business taxes through your personal return too).
- Applying for federal loans: If your startup needs federal funding to get off the ground, lenders will ask for your SSN as part of the application process to run a credit check and determine your eligibility for the loan.
How to get an SSN
Complete Form SS-5 and gather the documents needed to prove your identity, age, citizenship or immigration status, and eligibility to work in the US. A list of accepted documents can be found on the application form.
Submit the form and the supporting documentation to your local Social Security office by mail or in person. Once the SSA receives and approves your application, you can expect to receive your Social Security card in the mail in about two to four weeks.
For more information on requesting a Social Security number for the first time, visit the SSA website.
What is an Individual Taxpayer Identification Number (ITIN)?
An Individual Taxpayer Identification Number (also known as an ITIN) is a tax processing number only available to US taxpayers who aren’t eligible for a Social Security number. This group includes foreign nationals and US resident or nonresident aliens who must file federal tax returns.
Although ITINs are issued by the Internal Revenue Service (IRS) rather than the Social Security Administration, they function the same way as SSNs and are even formatted similarly to them (XXX-XX-XXXX).
It’s easy to differentiate between the two, though. All ITINs start with the number 9, while the second section of an ITIN is a number ranging from 50-65, 70-88, 90-92, or 94-99 (e.g. 9XX-71-XXXX).
Why might founders need an ITIN?
If your startup operates in the US but you’re not a US citizen or authorized resident, you’ll need an Individual Taxpayer Identification Number to identify yourself on your tax returns. This is because foreign business owners must still pay taxes on any income from US sources.
If you’re unsure whether you need an ITIN, the IRS’s Interactive Tax Assistant Tool can point you in the right direction.
How to get an ITIN
To apply for an ITIN, complete and submit Form W-7, along with the following information:
- Original documents or certified copies of the documents needed to establish your proof of identity and foreign status (a complete list of supporting documentation can be found in the instructions for Form W-7)
- The federal tax return forms that you need an ITIN for
You can mail your ITIN application package to the address listed in the Form W-7 instructions, or you can apply in person at any IRS walk-in office.
Alternatively, you can apply for an ITIN with an Acceptance Agent, an entity authorized by the IRS to review ITIN applications on the agency’s behalf before submitting them for processing. A list of authorized Acceptance Agents is available on the IRS website.
Applicants can generally expect to receive a letter from the IRS assigning them their ITIN within seven weeks of submitting their application. However, if you turn in your application during peak tax times or from outside the US, it can take up to 11 weeks to receive your tax ID number.
What is an Employer Identification Number (EIN)?
For business entities operating in the US, an Employer Identification Number (EIN) acts much like an SSN or ITIN does for individuals. It’s a nine-digit tax identification number (formatted XX-XXXXXXX) issued by the IRS that allows government authorities to identify your startup on tax forms and other documents.
In addition to the term EIN, you may hear this number referred to as a federal employer identification number (FEIN) or federal tax identification number.
Every business that hires employees or files federal business tax returns must have an EIN. As a result, this requirement generally doesn’t apply to sole proprietorships and single-member LLCs — these types of businesses are often run by a single individual with no employees, and the company’s earnings and tax liability pass through to the business owner’s personal tax returns.
Why should founders get an EIN for their startup?
In addition to being a requirement for most businesses, you’ll need an EIN to take advantage of many growth opportunities available to startups (more on this in the next section).
Having an EIN for your startup also helps to keep your Social Security number private, especially if you’ve structured your business as a sole proprietorship or LLC.
As we touched upon earlier, people who have an SSN must be careful in how they use it. You don’t want to give this number to just anyone, as they could use it to steal your identity and commit fraud.
This is why many business owners — including those who own sole proprietorships or LLCs — get an EIN, even if it’s not a requirement. By using an EIN, they don’t need to give their SSNs to clients, service providers, and other organizations when conducting business.
What can business owners use an EIN for?
Startup founders use their EIN to do the following:
- Opening a business bank account
- Filing business tax returns
- Applying for business licenses
- Hiring and paying employees
- Applying for business loans or credit
- Establishing pension, profit sharing, and retirement plans
Additionally, having an EIN helps to keep your business and personal finances separate — a key compliance requirement if your startup is structured as a partnership, LLC, or corporation.
When you apply for an EIN for your business, you’re essentially asking the IRS to consider it a separate entity from you as a taxpayer. And when you and your startup have separate tax identification numbers, it’s easier to maintain separate financial records — which becomes especially important if the IRS conducts an audit of your business finances.
How to get an EIN
Startup founders can apply for an Employer Identification Number for free through the IRS.
If you already have an SSN or ITIN and your business is located in the US, the IRS recommends applying online as it’s the fastest and easiest option. You can also apply for an EIN by submitting Form SS-4 by mail or fax. For more information on applying using these methods, refer to IRS Publication 1635.
International founders, on the other hand, must apply for an EIN by phone by calling (267) 941-1099 between 6 AM and 11 PM Eastern Time Monday through Friday. If you need to go this route, make sure that the person applying for your EIN is authorized to receive it and can answer the application questions listed on Form SS-4.
How long it takes to receive your EIN depends on the method you use to apply for one. Applying online or by phone allows you to receive your EIN immediately after submitting your application, while applying via fax ensures you get your new EIN within four days. Those who apply by mail can expect to receive their EIN about four weeks after submitting their application.
To learn more about the EIN application process, go to the IRS website.
Do startups need a state EIN too?
In addition to a federal tax identification number, your startup may also need state tax identification numbers for every state it does business in.
For instance, if you’re required to file sales tax, income withholding tax, and unemployment tax in a particular state, you’ll have to apply for a separate tax ID number with the state government agency overseeing each one.
Each state’s guidelines differ, so check with your state to learn more about your startup’s state tax requirements.
SSN vs. ITIN vs. EIN: What’s the difference between these tax identification numbers?
SSN vs. ITIN
Whether you need a Social Security number or an Individual Taxpayer Identification Number ultimately depends on your citizenship or immigration status.
SSNs are reserved for US citizens and authorized residents, as having one allows its owner to find employment in the country and take advantage of benefits like Social Security and Medicare. ITINs are for all other US taxpayers who aren’t allowed to have an SSN — so if you’re a foreign business owner required to pay US taxes on your income, for example, you’ll need an ITIN.
It’s also important to note that you can’t have an SSN and an ITIN at the same time. If you filed taxes with an ITIN but have an SSN now, you must inform the IRS about the change so they can void your ITIN and consolidate your records under your SSN. You can find more information on how to do this on the IRS website.
EIN vs. SSN
Employer Identification Numbers and Social Security numbers are used to identify businesses and individual taxpayers, respectively, but with one caveat:
Companies structured as sole proprietorships or single-member LLCs must use the business owner’s SSN instead of an EIN on their taxes, since business taxes for these entities are reported on the owner’s personal tax returns.
But even if your startup isn’t required to use an EIN just yet, you may want to apply for one anyway to reduce the number of people you need to give your SSN to.
EIN vs. ITIN
EINs differ from ITINs in much the same way they differ from SSNs. EINs are used to identify businesses, while ITINs are used to identify taxpayers.
However, ITINs are given to people who aren’t eligible for an SSN but are still required to pay US taxes — think foreign independent contractors, entrepreneurs, or business owners.
How are these tax identification numbers relevant for your startup?
Although you may not need all three of these tax ID numbers yourself, you’ll likely encounter most (if not all) of them as you build your startup. Here are some instances where you’ll need these numbers in your day-to-day operations.
Use your EIN (or SSN) to file your business taxes and complete paperwork
Most businesses will need an EIN to file their business taxes and complete other business paperwork, although an SSN may be required for a sole proprietorship or LLC instead. You’ll also use an EIN when conducting other business activities, such as applying for a business loan or hiring employees.
Keep in mind that you’ll still need an SSN or ITIN to file your personal taxes, even if you already have an EIN.
Ask for ITINs and SSNs when hiring and paying US-based workers
Many early-stage startups hire freelancers to handle parts of their business operations until they have the funds to hire full-time employees. US-based contractors who aren’t eligible for an SSN will likely need to provide you with an ITIN instead to ensure they pay their fair share of taxes.
When your startup is ready to hire employees, you’ll ask new hires for their Social Security number as a government-mandated part of the onboarding process. More specifically, you’ll ask them to complete Form I-9 (which asks for their SSN) to verify their identity and eligibility to work in the US.
You’ll also need each employee’s SSN to process payroll — the federal government will use this information to track their earnings, tax liability, and benefits.
Managing your startup’s admin work is easier than ever with Warp
Complying with federal and state laws as a new startup founder is tricky, as there are many guidelines and processes to remember. The problem? Failing to meet these regulations can result in steep penalties, so staying on top of these obligations is crucial as you scale your startup.
But with a tool like Warp’s payroll and compliance software, you can put your state tax and compliance processes on autopilot.
Learn how Warp can take these tasks off your to-do list by requesting a demo today.
