A tax ID, also called a Taxpayer Identification Number or TIN, is a number used for identification and tax purposes in the United States. The Social Security Administration or the Internal Revenue Service (IRS) assigns different kinds of tax IDs, including Social Security Numbers, Individual Taxpayer Identification Numbers, and Employer Identification Numbers.
When an individual sets out to start a business, the type of tax ID required will depend on the type of entity established and its future business actions.
Selecting the Best Tax ID Business Type
There are several types of tax IDs or TINs. The most common IDs for businesses include:
Most Individuals working in the U.S use a Social Security Numbers as a tax ID. This type of tax ID is used on tax returns, and by sole proprietors or Limited Liability Companies that have not hired any employees.
Non-citizens, such as individuals here on temporary visas or non-resident aliens, use ITINs to identify themselves for tax purposes, as well as open bank accounts.
Employers, sole proprietors, corporations, partnerships, non-profits, trusts, and estates use what’s called an Employer Identification Number or EIN to identify their businesses for both tax purposes, and to establish accounts and credit.
If you’re starting a business, it’s likely that at some point you’ll need to select a tax ID number. In most cases, obtaining an EIN is the answer.
While some types of business entities do not need an alternative tax ID, you might still want to apply for an EIN, as it allows business owners to flex organizational advantages, like opening a bank account or acquiring company credit.