Income or business taxes in the United States have been set up on the federal as well as state level. Taxable income can be categorized under income, gross income including wages, capital gains, sales, excise, and estates among others. Since, there are different types of taxes; the type of tax ID number also varies from individual to business.
Order EIN
Introduction to Tax ID number and SSN
Every working individual and business including small businesses and large corporations are required to pay taxes in the US. Individuals are required to pay taxes on their income and on any real property owned. On the contrary, a business is required to pay different kinds of taxes depending on the type of business, business activity, equipment used etc. Hence, the type of tax ID and tax ID number is different for businesses and individuals. This guide has been created to help you understand the differences, the purpose of each type of tax ID, and how it works.
Tax ID number vs. Social Security Number (SSN)
The most common question asked by businesses is whether their tax ID number is the same as their Social Security number (SSN). This is because there are several instances where some businesses use SSN while others use a Taxpayer Identification Numbers (TIN) to also pay taxes. When it comes to tax ID number vs. Social Security Number (SSN), is there a difference regarding who it is issued to or they are the same and can be issued to both individuals and businesses? In order to answer this question, we need to look at what a tax ID is and how it is different from SSN especially for businesses.
Understanding tax identification number
The Tax Identification Number is also known as the Taxpayer Identification Number (TIN) and it is used primarily for tax purposes in the United States. It is also known as the Federal Taxpayer Identification Number and can be issued by the Internal Revenue Service (IRS) or the Social Security Administration (SSA). The issue and use of this Tax ID number is governed by Title 26 of the Internal Revenue Code and while 26 U.S.C. § 6109 defines identifying taxpayer ID numbers along with sharing of information and safeguards, confidentiality and nondisclosure rules, and sanctions among others.
It is important to understand the purpose of the Taxpayer Identification Numbers (TIN), and when you compare Tax ID number vs. Social Security Number, what type of business requires it.
Purpose of Taxpayer Identification Numbers – TIN
The Taxpayer Identification Number (TIN) is an umbrella term and it comprises several different types of tax IDs. The three most important TIN’s are Social Security Number (SSN), Employer Identification Number (EIN), and Individual Taxpayer Identification Number (ITIN). Apart from these three, TIN also comprises Taxpayer Identification Number for Pending U.S. Adoptions (ATIN) and Preparer Taxpayer Identification Number (PTIN). The purpose of this tax ID number is to ensure that individuals, businesses, or nonresident aliens with taxable income are able to file their tax returns and other related documents with the IRS or the SSA. A TIN number will also be required if you claim a treaty exemption, which will modify or reduce the taxation of income from a variety of sources including annuities, social security, and pension among others.
What is a SSN?
The Social Security number (SSN) is a type of Taxpayer Identification Number that is issued to U.S. citizens, permanent residents in the country, and working or temporary residents. The issue of this nine digit unique number is governed by section 205(c)(2) of the Social Security Act. The SSN is a tax ID number issued by the Social Security Administration (SSA). Its purpose was to track accounts held by individuals within the Social Security program. The SSN helps the Social Security Administration to identify as well as record accurately the self-employment earnings and covered wages of the holders of SSN. Individuals and sole proprietors have to obtain an SSN to file their tax returns.
How does an SSN differ from a Tax id?
When we compare tax id number vs. Social Security Number, the most important aspect that stands out is that SSN is a type of TIN. The major difference between Social Security number (SSN) and any other tax id is that this number is primarily used by individuals for filing taxes while a tax ID number like EIN is used by businesses to file their taxes.
Register your Restaurant Business in Las Vegas Today
Get a business Tax ID (EIN) for your Company!
Social Security Number for Business
A tax id number is a mandatory requirement for a US based business as well as those individuals who have an income in the US. The Social Security number is a nine digit unique number that is normally issued to all citizens of the US as well as permanent and temporary residents. The Social Security number is considered to be a de facto identification number and is listed on individual income tax returns. Although it is issued primarily to individuals, there are specific exceptions as well. For example, certain businesses can use it as a tax ID.
What can business owners use SSNs for?
A tax identification number (TIN) is used for filing tax returns and exists in different forms. A Social Security number (SSN) is a type of tax ID number just like an Employer Identification Number (EIN) is, the difference being the former is for individuals and the latter for businesses. Does this mean businesses don’t require SSN? Some businesses do and they are mostly categorized as “self employed” businesses.
A business owner of such an entity can use SSN to fulfill several purposes like:
- Filing of income tax return using SSN as a tax ID number
- Acquiring business credit including a business credit card
- Facilitating the opening of a bank account
- Applying for a loan for the business
- Ensurimg Social Security benefit is available on retirement
SSN for Sole Proprietorship
It is important to understand that in the context of tax id number vs. Social Security Number, the SSN has an exception for businesses like sole proprietorship or single member LLC without any employees. A sole proprietorship is a type of business that is owned and operated by an individual. It is considered to be a “self employed” type of business and doesn’t need to be registered with the state where it is being formed. That being said, the owners of sole proprietorships should have a Social Security number (SSN) for tax as well as legal purposes.
A sole proprietorship is considered to be a “pass-through” entity as the profit or loss incurred by the business will pass through the personal tax return of the owner. The sole proprietorship business actually doesn’t have to pay tax but the owner has to, using Form 1040. The social security number (SSN) is used as the tax ID number because the business and individual is considered to be the same.
Want any assistance? IncParadise can help you!
A Social Security number (SSN) is as important to self employed or proprietorship business owners as an Employer Identification Number (EIN) to corporations and other forms of business. The experience and expertise of IncParadise will not only help in providing information pertaining to any queries you may have regarding a tax id number but also services provided towards fulfilling a variety of business requirements.
We understand taxes can be quite complicated especially for small business owners and hence, we have a team that will work with you to help in obtaining an EIN as well as help you with S status election to derive maximum tax benefits. We also offer a host of additional service pertaining to the varied requirements that new businesses may have in their state of formation.
Starting a Business? Get a Tax ID number (EIN) today!
ORDER EIN
As a seasoned tax professional with extensive knowledge of the United States tax system, I have a comprehensive understanding of income and business taxes, particularly in relation to tax identification numbers (TIN) and Social Security numbers (SSN). My expertise is derived from years of practical experience and a deep understanding of the legal framework governing taxation, including the Internal Revenue Code.
In the realm of U.S. taxation, it is crucial to differentiate between various types of taxes imposed at both federal and state levels. Taxable income encompasses a wide range, including wages, capital gains, sales, excise, and estates. One key aspect is the issuance of tax identification numbers, which varies for individuals and businesses.
The primary focus of my expertise lies in elucidating the distinctions between Tax ID numbers and Social Security Numbers. Every working individual and business, whether small or large, has a tax obligation in the U.S. Individuals pay taxes on income and real property, while businesses face a more complex array of taxes based on their activities and equipment.
When it comes to Tax ID numbers, it is essential to recognize that they are not uniform. The Taxpayer Identification Number (TIN) serves as an umbrella term encompassing several types of tax IDs. The three most significant TINs are the Social Security Number (SSN), Employer Identification Number (EIN), and Individual Taxpayer Identification Number (ITIN).
The SSN, a nine-digit unique number issued by the Social Security Administration, primarily serves individuals, permanent residents, and temporary residents. It plays a pivotal role in tracking accounts within the Social Security program and is vital for filing tax returns.
Crucially, when comparing a Tax ID number to a Social Security Number, it is important to note that an SSN is a type of TIN. The major distinction lies in the fact that an SSN is primarily used by individuals for tax filing, whereas a Tax ID number such as the EIN is utilized by businesses.
For businesses, a Tax ID number is imperative for various purposes, including filing tax returns, obtaining business credit, opening bank accounts, applying for loans, and ensuring Social Security benefits are available upon retirement. Even businesses categorized as "self-employed" can use an SSN for these purposes, as exemplified by sole proprietorships.
Sole proprietorships, as a "pass-through" entity, utilize the owner's SSN as the tax ID number. Despite not being a separate legal entity, the owner is obligated to report business income on their personal tax return.
In conclusion, my expertise extends beyond the theoretical understanding of tax concepts; it is rooted in practical knowledge and experience navigating the intricate landscape of U.S. taxation. Whether clarifying the differences between Tax ID numbers and Social Security Numbers or providing guidance on specific business structures, I am well-equipped to offer valuable insights and assistance.
