A business Social Security number is used as a way to identify and set a business apart from all others, much the same way a Social Security number is a unique identifier for each person. A tax identification number or TIN is the business version of a Social Security number, and small business owners often get TINs so they can conduct business and keep their personal finances separate from business finances. The way you register your business with the state and whether you hire employees can help you decide whether you need a TIN.

Information on TINs

A TIN is made up of nine digits that the government uses to identify a person or business.

  • Individuals use Social Security numbers as their TINs.
  • For a business entity, the name for a TIN is the employer identification number. It can be called an EIN or TIN.
  • A Social Security number is always a type of tax ID number, but tax ID numbers aren't always Social Security numbers.

Why Tax ID Numbers Exist

The biggest reason tax ID numbers exist is so business owners can pay tax on income that businesses earn. The tax ID number or TIN has to be included on all tax forms that the owner submits for the business. Banks also require tax ID numbers when opening business accounts. Also, suppliers or customers will sometimes ask for a business's tax ID number when setting up an account or if they need to write a check to pay the business.

Tax IDs for Different Business Types

For a sole proprietorship, a separate tax identification number isn't required for tax purposes. This is because the sole proprietor's Social Security number is the same thing as the business's ID for tax purposes. No separate paperwork needs to be filed for this. The coverage is automatic since the owner and the business are technically the same entity.

Other types of businesses, such as partnerships or corporations, have to apply for a separate tax ID number if they want to conduct business. Because two or more people are involved in a partnership, a partnership can't use just one person's Social Security number. A corporation, because it's a unique entity, is already separate from the individual owner or owners and needs its own TIN number.

EINs

A separate tax ID number isn't required for a sole proprietor to do business unless that sole proprietor wants to hire employees. Then an EIN is required. The EIN is necessary for tax forms when paying employees' taxes on behalf of a sole proprietorship's workers. When the W-2 is prepared for each employee, the EIN is shown on that form. An EIN is also required for certain small business owners who are affiliated with organizations such as nonprofits, farmers cooperatives, and even some trusts.

Tax IDs for Acquiring Business Credit

Credit issuers often require both a TIN and a Social Security number in order to offer credit. Getting a credit card for your business without sharing your Social Security number with the card issuer isn't easy. If you can't show your Social Security number or don't want to share it when applying for a business credit card, the process is to:

  • Fill out the application to get an individual taxpayer identification number, which is also called an ITIN.
  • After receiving your ITIN, apply for an employer identification number. This is the EIN.
  • Seek out business credit card issuers, such as one that typically issues corporate credit cards, and then apply with your EIN instead of your Social Security number.

In this case, your EIN functions as a Social Security number for your business. You may run into a problem trying to get credit cards this way, though, because credit card issuers tend to hesitate to issue business credit cards based solely on an EIN. When you apply for a credit card using only an EIN, the issuer can't run a personal credit check on you because you haven't provided your Social Security number. Using this technique also prevents the credit card issuer from requiring that you personally guarantee your business credit card spending.

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