1. ITIN Numbers Explained
2. Employment Identification Number (EIN)

ITIN vs EIN is something you should understand if you're running a business. These are part of the set of numbers we use to identify ourselves and our businesses, in the same way we use passport numbers, drivers license numbers, and Social Security numbers.

A lot of business owners are curious about the difference between ITIN, or Individual Taxpayer Identification Number, and EIN, or Federal Employer Tax ID number. While they serve similar functions, there are important differences between the two, and it's important to understand both, especially in light of the 2014 announcement from the Internal Revenue Service. This announcement said that your ITIN will now expire if it's not used on your federal income tax return for five years consecutively.

Your social security number is the most common form of personal identification number used for tax purposes. SSNs are nine digits and belong to US citizens and authorized residents. If you are employed and regularly receiving wages, you will need an SSN. If you don't have one, you'll need to apply for one, and if you're not eligible for an SSN, you will need an alternative. That's where the ITIN and EINs come in. 

ITIN Numbers Explained

An ITIN refers to a number that enables a person to be identified and is a generic term employed by the Internal Revenue Service for tax purposes.

While it's possible to use ITINs for identification, their primary function is tracking the payments for individuals for their federal income tax, as well as other areas relating to tax.

There are three possible forms of taxpayer ID number: ITIN, EIN, and SSN. The SSN is the most commonly used number that people are familiar with, but there is some confusion over the specific uses of the other two.

An ITIN is issued by the IRS to individuals who aren't eligible for the more regularly used SSN, such as non-resident aliens and foreign nationals who are required to file information returns and federal tax returns.

ITINs are used only for tax reporting purposes by many non-US residents when they form Limited Liability Companies or Delaware corporations.

An ITIN is needed to file taxes with the IRS if, for example, at least one of a company's revenue streams comes from the US and profits and losses flow to a shareholder or member. In order to fill in the required tax information for the IRS, an ITIN is required.

Since 2012, 21 million ITINs have been issued by the IRS to taxpayers as well as their dependents. Applicants are usually required to supply a valid tax return and other supporting documents in order to establish their identity and determine other factors like eligibility for certain concessions.

Employment Identification Number (EIN)

The Employer Identification Number, also known as your EIN, is another form of identification used by the IRS in the administration of tax laws.

The EIN is used for the identification of an entity to banks, other businesses, and, of course, the IRS. You don't necessarily need to be an employer to require an EIN.

Although a business generally requires an EIN if it has employees, there are other circumstances that require one, such as being a partnership, corporation, or Limited Liability Company (LLC). You'll also need one if you file taxes for any of the following:

  • Alcohol
  • Firearms
  • Tobacco
  • Excise
  • Employment

You might also need an EIN if you pay for services from a contractor or another professional for a value of more than $600 in one calendar year.

The following bodies and organizations use EINs:

  • Employers
  • Partnerships
  • Corporations
  • Non-Profits
  • Sole proprietors
  • Estates
  • Trusts

Because of the substantial differences between international tax laws, the proper classification of the entity is an essential factor that influences the EIN application and the subsequent tax liability.

If you have a new business, your bank will often require you to provide an EIN before they're able to open a business account. Think of it as your business' social security number - you need it to do business in the United States, and use any bank account for business.

If you need help with ITINs and EINs, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.