How Does an SSN Differ from a Tax ID (EIN)?

Every U.S. business owner is well aware that the Internal Revenue Service (IRS) takes a keen interest in the cash flows coming into and out of a for-profit organization. It’s vital to report this information accurately on tax returns with the appropriate identification number that is linked to the business in question.

But this is where many business owners get confused. Some businesses file taxes under the owner’s Social Security Number (SSN); other businesses use an Employer Identification Number (EIN), also known as a Federal Tax Identification Number.

EIN vs. SSN: Which One Should You Use When Filing Taxes?

So what number should you use for your tax return? The short answer is that you don’t need an EIN, and can use your SSN, if your business is what the IRS classifies as a “disregarded entity.” A disregarded entity is a business that is not separated for legal purposes from the owner itself. Examples of this would be a sole proprietorship, which is not registered with the state. These types of businesses can file tax returns under the owner’s SSN.

On the other hand, if you own a corporation, a partnership, or any business that pays employees, you are legally required to apply for an EIN. You should use this number to file your business tax returns. However, some owners of sole proprietorships elect to apply for an Employer Identification Number.

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What Are the Benefits of Having an EIN?

There are several benefits of having an EIN even if you’re not legally required to have one. A major advantage of having an EIN is that it enables you to apply for a business bank account, which can be helpful in keeping your operational expenses separate from your personal funds. It can also reduce the chances of identity theft, as you will be able to use an EIN instead of your private SSN for identification purposes in business transactions.

To learn more about the differences between an SSN and an EIN, check out the helpful infographic below brought to you by the team at FastFilings.

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