The Difference Between an EIN, Tax ID, and Social Security Number

February 1, 2020


Introduction

In this video, you will get answers to these questions:

  • What is the difference between an EIN, Tax ID, and Social Security Number?
  • What is an EIN Number?
  • What is a Tax ID Number?
  • What is a social security number?
  • How does the IRS know there is an audit needed?

Video Transcript

What’s the difference between an EIN, tax ID, and a social security number? That’s the question I’m answering today. I’m Aaron Hall, an attorney for business owners in Minnesota. I was asked this question the other day, and I thought, you know what, that would be a helpful video because there’s a lot of ambiguity around EINs, social security numbers, and the term, tax ID.

Now let’s talk about EIN. It stands for employer identification number. It’s issued by the IRS. The EIN or employer identification number is given to businesses and trusts, regardless of whether they’re actually employers. It’s basically saying, this is the tax number for a business or for a trust. So that’s an EIN. Individuals, we have a tax number, it’s our social security number. That’s given to us when we’re born, and that social security number applies to each individual. Originally, individuals were going to be part of the social security program, but now it’s essentially used as a tax identification number.

And now let’s talk about the term tax ID number or tax identification number. Tax identification number encompasses both an EIN and a social security number. So for example, let’s say you want to open up a bank account, the bank will say, “Please enter your tax ID number here.” Well, if the account is under the name of an individual, you use your social security number. If the account is under the name of a business, like an LLC or a corporation, you’ll use your EIN number for the business. That is how the government keeps track of which accounts are owned by an LLC, a corporation, an individual, et cetera.

Keep in mind then that companies, businesses, financial organizations, will report to the government, in particular, the IRS significant transactions and information about these accounts. That for example is how the IRS may know that an audit is needed. If there has been $100,000 received in an LLCs account, and the bank reports that information to the IRS, under that EIN number, the IRS computer systems will say, “All right, was there a tax return for this EIN number? If no, hey, what are we going to do about that?” And the IRS may take action based on that.

So, tax ID numbers include EINs for businesses and trusts and security numbers for individuals. And it is information that you put on accounts or use to identify the individual or entity that maybe owns an account or owns some other asset.

All right, so there you have it. That explains the difference between an EIN, tax ID number, and social security number. For more information about topics like this, you can see the link to my website at aaronhall.com, which is in the description below. If you find these sorts of videos are helpful and you’re interested in more, you’re welcome to subscribe. And if you have any questions, feel free to add them in the discussion section below. Thanks for joining me here today.

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