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For individual taxpayers, their Social Security number is their tax identification number unless they applied for a separate number for their business. The Internal Revenue Service does not require all businesses to register for a tax ID, but Bloomberg Businessweek says that having a separate number for your business is a good idea for many.
The IRS uses various types of numbers to differentiate among taxpayers. Citizens of the United States receive a Social Security Number (SSN) at birth or after receiving citizenship. Business owners apply for federal tax identification numbers, also known as Employer Identification Numbers (EIN), when the business is a separate tax entity from the owner. Businesses must have an EIN before hiring employees. The Individual Taxpayer Identification Number (ITIN) is for people who do not meet the requirements for a SSN.
You cannot file your tax returns without a number that identifies you or your business to the IRS. Whether you use your SSN or another identifier, you include the number on your tax filings and any checks you send to the IRS. Many sole proprietors can use their SSN and still file a Schedule C with their Form 1040. If you have employees or file excise or pension tax returns, you must apply for an EIN. If you are filling out a business form, use your EIN if you have one. Otherwise, use your SSN or ITIN, whichever applies to your situation.
Besides the IRS, many businesses also use your number for identification purposes. As an individual, your SSN is tied to your credit reports, school transcripts and employer's files. Businesses use their EIN when opening accounts with other businesses and when reporting wages to their employees. For some, it is tempting to use an EIN instead of a SSN when applying for credit if they have a bad credit report. The Federal Trade Commission calls this practice "file segregation" and warns that it is illegal. If you apply for personal credit, you must use your SSN.
Applying for Your EIN
You can apply for an EIN online by visiting the IRS website. Additionally, you can apply over the phone by calling 800-829-4933. If you apply by FAX or mail, you must send in a Form SS-4. Online or phone applicants receive an EIN immediately. Faxed applications take four business days, and mailed applications take up to four weeks. EINs are free when ordered from the IRS.
- id form image by Alexey Klementiev from Fotolia.com