ITIN vs. EIN vs. SSN: A Business Owner’s Guide to Taxpayer Identification Numbers

There’s a difference between personal and business tax identification numbers, and understanding these distinctions is essential for managing finances in the entertainment industry.

A taxpayer identification number (TIN) is used by the Internal Revenue Service (IRS) to identify individuals and businesses for tax purposes. It serves as a unique identifier for tracking income, reporting taxes, and ensuring compliance with tax laws.

There are three types of Taxpayer Identification Numbers (TINs): Social Security Numbers (SSNs), Employer Identification Numbers (EINs), and Individual Taxpayer Identification Numbers (ITINs).

• If you’re a solo musician and a U.S. resident or a nonresident alien authorized to work in the U.S., your SSN is used to report personal income and pay taxes.
• An EIN is your ally if you operate as a business entity such as a record label, merchandise company or hiring backup singers for your performance.
• If you’re a nonresident alien who doesn’t qualify for an SSN, you may apply for an ITIN which will allow you to file U.S. taxes

Key Takeaways:

• A TIN, or Taxpayer Identification Number, is a unique number used for tax identification purposes.
• SSNs are for personal use, EINs are for business entities, and ITINs are for nonresident aliens who don’t qualify for an SSN but need to file U.S. taxes.
• Ensure you use the correct tax ID to avoid delays, protect personal information, and fulfill your tax obligations accurately.

Understanding TINs

Your TIN is your tax ID. It identifies whether you’re an individual, a business, or someone from abroad who needs to file taxes while in the U.S. The IRS issues EINs and ITINs, while the Social Security Administration issues SSNs. These numbers help the IRS monitor tax compliance and determine eligibility for refunds.

What Is an SSN?

Your SSN is your unique nine-digit number issued by the Social Security Administration to track your income and determine your eligibility for Social Security benefits. Employers use it to report wages, and it also serves as your identifier for tax filings, government records, and official paperwork like opening bank accounts or applying for credit cards.

SSN Eligibility
An SSN is available to anyone born in the U.S. and lawful permanent residents, such as green card holders. Non-residents with lawful immigration status, like H-1B, L-1, or O-1 visa holders, can also apply for an SSN if they have work authorization under their visas.

Business Purposes
Solo musicians or independent artists can use their SSN to report income as sole proprietors. For example, an SSN can be used on tax forms to report earnings from album sales, gigs, and streaming royalties.

However, as your music career grows, an SSN may no longer meet your needs. For instance, if you want to register your band as a business, hire roadies, or take advantage of more complex tax write-offs, you will need an EIN.

What Is an EIN?

An EIN is a business entity’s Social Security Number. Like the SSN, EINs are also nine digits long and identify businesses for tax purposes. Having an EIN allows you to hire employees, open business bank accounts, and file business taxes.

Why You Might Need an EIN
Aside from big companies, a range of business entities can benefit from having an EIN, including:

• Corporations and Limited Liability Companies (LLCs): They need an EIN for business banking and tax filings.
• Nonprofits: These organizations need an EIN for official registration, donations, and tax-exempt status.
• Sole Proprietors and Single-Member LLCs: While they might not always need an EIN, the number is still required when maintaining employees, setting up retirement plans, or operating as an LLC with special tax status.

How to Get an EIN
Applying for an EIN is easy. You can apply online via the IRS website and receive your EIN immediately if approved. To apply, all you need to do is fill out basic information about your business, including your legal name, address, and type of entity.

Why Use an EIN

• Protection: Using EIN instead of SSN for business transactions lessens the risk of identity theft.
• Professionalism: When you use an EIN, you’re officially separating your business affairs from your personal ones, giving your business a professional identity.
• Smooth Banking and Hiring: Open new business bank accounts and hire employees with an EIN. Many banks, lenders, and other financial institutions need this number to start the transaction.

What Is An ITIN?

ITIN is a nine-digit tax processing number that the IRS issues to those who need a federal tax ID number but aren’t eligible for SSN. It allows nonresident aliens to comply with U.S. tax laws even if they don’t have the right to work in the country.

ITIN Qualifications

• Dependents or spouses of U.S. citizens or residents: This includes children and spouses of U.S. taxpayers who are claimed on a tax return but are not U.S. citizens or residents themselves.
• International students or scholars: Students, professors, and researchers temporarily residing in the U.S. and receiving income from U.S. sources need an ITIN to file taxes if they can’t get an SSN.
• Nonresident aliens: They need to file a U.S. tax return for U.S.-sourced income, such as investment and rental property.

How To Apply for an ITIN

• Fill out Form W-7 and submit it with a valid U.S. tax return or documents proving U.S.-sourced income.
• To confirm identity and foreign status, you must include original or certified copies of identification, such as a visa or passport. You can apply in person at designated IRS offices.
• Processing takes seven weeks to almost three months. Applying early may avoid delays.

Limitation of ITINs
ITIN enables you to file taxes and comply with U.S. tax laws, but it doesn’t authorize you to work in the United States or be eligible for Social Security benefits. Furthermore, having this number won’t change your immigration status or entitle you to tax credits reserved for U.S. residents.

Figure out your taxes, even if you’re not from the U.S. and are working here at the moment.

Common Errors and Misuse of Tax ID Numbers

Understanding tax numbers is confusing. You may end up misusing some of them or committing errors when applying. Here are some of the common ones:

SSN
An SSN is a personal identifier and is not intended for business use. However, you might incorrectly use an SSN instead of an EIN on business tax or payroll forms. Such erros can lead to tax processing delays and IRS complications.

EIN
An EIN is exclusively for business purposes. If your business structure changes, such as transitioning from a sole proprietorship to a C corporation then you will need to obtain a new EIN. However, electing S corporation status without altering your business’s underlying structure, a new EIN is not required. It’s important to note that an EIN is not proof of residency or work authorization; it’s purely a tax identifier. Additionally, each business entity needs only one EIN, and applying for multiple EINs can lead to complications with tax filings and payroll reporting.

ITIN
Some mistakenly believe that an ITIN allows work in the U.S.; however, this is not the case, as ITINs are strictly for tax purposes. Additionally, you must renew your ITIN if it hasn’t been used on a tax return for three consecutive years. Failing to renew an expired ITIN can result in delays to your tax refund. If you are eligible for an SSN, you should not apply for an ITIN. Having both can create filing conflicts with the IRS and may increase the risk of an audit. Furthermore, an ITIN cannot be used to identify your business, it is intended solely for individual tax reporting, including for sole proprietors who are foreign nationals.

Final Thoughts

Choosing the right TIN for your personal and business is important as it can affect your tax filings. Use an SSN if you’re a resident with work authorization and an ITIN if you’re not eligible for an SSN but still need to file a tax return. Apply for an EIN if you started your own business. Understand each purpose and eligibility of these TINs to get into the right places come tax season.