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Your Tax Identification Number Explained

 

A tax identification number is usually the same as your social security number (SSN). Many freelancers and those who are otherwise self employed elect to file for an employer tax identification number (EIN), which serves to identify the business as an employer. Those who work in the United States, but who cannot get a social security number, are required to have an individual taxpayer identification number (ITIN).


The Social Security Number or Individual Tax Identification Number


Your SSN is your personal tax identification number, and it is given to employers to file the appropriate IRS paperwork, whether it is a W2 or 1099. Freelancers may elect to give this personal number to clients until they have received an EIN. Those who have SSN's cannot use an ITIN.


Anyone in the United States who does not have SSN, must have an ITIN to be eligible to work in the country. Applying for an ITIN involves filling out the appropriate form, attaching a tax return and appropriate documentation to show resident alien or non-resident alien status (to show ineligibility for a SSN). This form cannot be filed without an attached tax return. Within 6 to 8 weeks, applicants will receive their ITIN via mail. The ITIN will not work for identification purposes like the SSN.


The Employer Identification Number


Self employed individuals should file for an EIN. This allows them to keep their personal income separate from their business income. This number can be given to clients in place of a social security number for those who worry about identity theft, and may also be provided on 1099 paperwork for anyone you may subcontract work throughout the course of the year.

To apply for an EIN, there is an online application. It details personal information and attaches the personal SSN to the EIN to make it easier for the IRS to track. In addition to personal information, it asks questions about the business, such as the name, the nature of the business, income levels, and so forth. With 6 to 8 weeks, applicants will receive the EIN via mail. The application is fairly simple for most freelancers and self employed individuals, though it may become a bit more complicated for partnerships and limited liability corporations.


Regardless of which tax identification number used, the IRS requires one of these identifiers for everyone who files taxes. EINs are best used when personal and business taxes are filed completely separately of one another. If filing self employment income with personal taxes, an employer tax identification number is not necessary. If there is any question of which kind of tax identification number your situation requires, consult with the IRS. Simply not filing taxes as a result of a lack of a number will not suffice in the event of audit.


As always, the advice presented in this article is for information purposes only and should not take the place of a legal tax professional. If any questions or concerns arise, please contact a tax professional or the IRS directly.

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