Depending on the type of company and its planned business actions, a tax ID number (TIN) may not be required.
For example, a tax ID is not mandatory if you are a sole proprietor, or a Limited Liability Company (LLC) without employees. In both cases, the business owner can use his/her Social Security Number (SSN) in lieu of a tax ID, sometimes called an Employer Identification Number (EIN).
Business entities such as corporations, partnerships, trusts, estates, etc., are all required to obtain a tax ID or EIN. This number is assigned by the Internal Revenue Service (IRS), and is used to identify businesses with respect to their unique tax requirements.
Even if you’re not required to obtain a tax ID or EIN, there are some organizational advantages you might want to consider.
An EIN is a nine-digit number that functions like a Social Security Number for tax-paying individuals. This number is what identifies your business within the IRS, and is also used to create a credit file with banks and other credit agencies.
An EIN is obligatory if you wish to open a bank account in the name of the business, such as a tax ID for LLC, or if you wish to seek credit on behalf of your company.
Why Do I Need a Tax ID?
To clarify, the difference between EIN and TIN is simple: an Employer Identification Number (EIN) is a type of tax ID (Tax Identification Number or TIN), and will suffice in most cases if and when a tax ID is required.
If you plan on starting a business, there are only a few cases in which you will not be required to obtain a tax ID, but there are still advantages to having one, even if it’s not mandatory.