ITIN, SSN, EIN: What Are They, Why Are They Important, and Do I Need One?
Apologies for the radio silence, summer brings with it travel of all kinds but sometimes those with the family if you’re lucky.
My colleagues Dave Springsteen and Mike Smith have been talking about new rules published by the IRS with regards to ITIN applications and renewals. It raised for me the issue that many of my overseas (from a US perspective) clients have when they first encounter the US system; mainly do I need a tax ID? If so, what tax ID do I need? And why do I need one anyway?
Do I need a tax ID?
In reality, a client doesn’t usually ask themselves this question! Or if they do, they have been doing their own valuable research and I may see if they would like a new career in taxation. Anyhow this is the first important question a tax adviser should help you resolve when considering the US tax system.
A simple answer to the question is if you have US source income subject to US taxation; or are a US taxpayer by virtue of residency (individuals) or incorporation (businesses) and therefore should be a US taxpayer; then ordinarily yes, you do need one. The difficult part now is what constitutes US source income and/or a US taxpayer by virtue of residency or incorporation. Luckily for you all there will be a subsequent blog to take care of what constitutes US source income and how a person becomes US resident in the very near future so watch this space!!
Now that we’ve established who it is that needs a taxpayer ID…
What tax ID should I apply for and what are the different types of tax ID?
Ok, there are mainly three types of tax ID as identified in my rather insightful article title. These are ITIN, SSN or EIN.
ITIN (Individual Taxpayer Identification Number)
The full length description says it all really; this is a tax ID for individuals only. In a nutshell, if you can’t obtain an SSN (see below) and are required to obtain an ITIN (see above!) you should apply for an ITIN as an individual. As alluded to above, the following article explains the ITIN process in a little more detail should you be keen to read.
SSN (Social Security Number)
An SSN is another individual only ID. However an SSN is what all US citizens use as their only form of tax ID and therefore the ID that government agencies will always request and use as a reference.
For non-US citizens, you MUST apply for a SSN if you have an immigration visa that allows you to legally work in the US. Therefore is an individual enters the US on L1, H1B or E2 visa they are required to apply for a SSN and should not obtain an ITIN.
EIN (Employer Identification Number)
An EIN is also explained pretty simply in the title, although can be a little misleading. Essentially it’s a tax ID that a business should obtain as it’s sole tax ID for tax purposes. This business can be a single member LLC, C Corporation or a partnership in any form amongst other things. However they don’t necessarily need to actually employ anyone to obtain an EIN.
Essentially if you are a trading entity or business incorporated in the US then as I said above you will ordinarily need an EIN to do so. Furthermore what overseas parents that incorporate US subsidiaries should be aware of is that you will not be able to even start the process of opening a US bank account without an EIN.
As you can see there are many types that may fit your circumstances and requirements.
We here at CLA can assist in the application process of obtaining any one of these tax IDs for our clients so if you have any specific questions on the above get in touch or post on the message boards and I’ll do all I can to help.
Til next time