In US, there exists different Tax Identification No. like Employer Identification Number (EIN), Individual Taxpayer Identification Number (ITIN), Social Security Number (SSN) which can be used by persons having business established there. The Internal Revenue Service (IRS) make it a requirement to apply for these IDs for tax purposes. Non-Resident Aliens must know the difference between various Tax IDs to avoid any misperception and manage their businesses safely & smoothly. Below here, we discuss in detail about different Tax IDs and their use for a business.
EIN is the Tax ID mainly used by registered legal entities in US. Individuals are also identified by tax ID numbers like social security number (SSN) and Individual Tax Identification Number (ITIN) which are mainly used to identify US citizens and foreigners or non-residents.
Employer Identification Number (EIN)
An EIN which is also known as Federal Tax Identification Number is a 9-digit number that is issued by IRS (Internal Revenue Service) to the businesses operating in U.S. It is used for identification of the business and for tax purposes in U.S. Every business has a unique EIN having no expiration date. It does not get transferred or cancelled but can be closed by an application to IRS office.
The application to get an EIN can be submitted from anywhere. Form SS-4 is being used to apply for an employer identification number (EIN) and it will take 15-20 days to get an EIN.
Major reasons for applying EIN by foreign Entrepreneurs may be:
- If a Non-Resident Alien wants to operate a business in USA and don’t have an SSN, he needs to get an EIN issued by IRS. EIN is always required by a business to grow at a competitive pace
- Opening and maintaining a Business Bank account
- Recruitment of employees in the US organization
- To fulfil all the IRS Compliances
- To change type of US organization
- Creating a trust as a separate legal entity that allows it to hold property in the name of a beneficiary
Advantages of having an EIN
- To get a Business Bank Account– First thing you need is EIN while opening a Business Bank Account to prove legality of your business
- Business Tax expenses Deductions– Business expenses will be considered authentic & eligible by IRS if EIN is available
- Applying for a business loan– To get a business loan for finance purpose, one need EIN to apply for a Bank account where funds from loan can be transferred
- Build credibility– Having an EIN add trust to the customers and vendors in your business.
- Maintain Privacy & Security– While doing business transaction with different parties, one can provide EIN to them instead of SSN. That way, Personal level information will be kept safe & secure and don’t merge with business details.
- Declares soundness of business-As a freelancer or independent contractor, having an EIN keeps you at better place and increase your credibility. it also proves that you are doing a serious business as an owner and will be responsible for each & every financial transaction you entered in.
- Increase confidence with vendors-. Wholesale Suppliers ask for your EIN before they engage in a business with you. Having EIN can confirm trustworthiness of your business among them and they can rely on you after transferring payments. Genuineness of a business can be proved by having legal tax IDS like EIN.
- Explore big opportunities as a foreign entrepreneur-For a Non-Resident Alien, maintaining a business in U.S. becomes very easy after getting an EIN in the absence of a Social Security number. Applying for business permits and licences would require EIN along with other documents. Filing Tax Returns with IRS must require mentioning an EIN in the forms
To apply for EIN following information will be required:
- The legal name of the business
- Trade name, type of entity and address of business
- Date and Place of incorporation of the entity
- Nature of business, type of activities
- Number of members in case of LLC
- Maximum number of employees expected to be hired in the first year of the business
Requirement of an EIN for an LLC
To complete Form 5472, An LLC owned by a Non-Resident Alien must first obtain an EIN. You must submit Form 5472 by paper or fax. The Non-Resident Alien -owned company must declare all reportable transactions on form 5472. A single-member (Non-Resident Alien) owned LLC is a Disregarded Entity for tax purposes, meaning that all income flows through to the owner. For the purpose of Form 5472 however, the LLC must file Form 5472 together with a pro-forma Form 1120 (usually used for corporations) by the due dates.
For more info on Forms to be submitted by foreign owned LLCs in US- Click Here
SSN (Social Security Number)
The SSN is an identification number for US citizens and permanent residents. SSN is required to receive payments or wages, register for voting, apply for loans, passport or driving license, open bank accounts, etc. SSN is issued for a lifetime and has no expiration. Government uses SSN to keep a track of an individuals’ employment history and earnings and determine their eligibility for benefits like Medicare and Social Security. Banks use SSN to verify credit of the applicant and employers use SSN to verify their eligibility to work in US or to report their income. To apply for SSN, visit the SSA official website and file form SS-5. For foreigners, an SSN is not required for essential services such as opening bank accounts, starting a business, etc.
For non-residents, foreign nationals and undocumented immigrants, the ITIN is used to file an income tax return in the US. In practice, this documentation is for people who have some kind of residence or legal business work in the country to be able to declare their taxes. ITINs leading digit is always a “9”.
Form W-7 is used for ITIN Application. ITINs expire when not used on a return in the three most recent tax years.
In addition to the EIN, depending on the structure and organization of your company, LLC or C Corp, owners may be required to file their individual US income tax. Thus, it is necessary to obtain an ITIN to make the mandatory declarations as an individual in the United States.
A Green card holder may renounce or abandon their green card and US permanent residency status by completing the Form I-407 abandonment of lawful permanent residency status. After giving up a green card, you still need to file a final US tax return and include IRS Form 8854.