The Employer Identification Number (EIN) and Social Security Number (SSN) are two distinct numbers with different purposes. Both are issued by the federal government, and both are nine digits long, but that’s where the similarities end. Employers must know the difference between the two in order to ensure their compliance with the law.
EIN vs SSN
An Employer Identification Number is a number assigned to a business by the Internal Revenue Service (IRS). It’s used to identify the business for tax purposes. It’s also used to open bank accounts and apply for credit. An EIN is required for any business with employees, but it’s also required for businesses without employees, such as sole proprietorships and single-member LLCs.
A Social Security Number is an individual’s unique identifier issued by the Social Security Administration. It’s used to track the individual’s earnings and benefits and to report them on tax returns. Every employee must have a Social Security Number in order to be paid.
The Difference between EIN and SSN
The primary difference between an EIN and an SSN is the purpose for which they are used. An EIN is used to identify a business, while an SSN is used to identify an individual. An EIN is used to report business taxes and open a business bank account, while an SSN is used to report an individual’s income taxes and apply for benefits.
Another difference is that an EIN is assigned to a business, while an SSN is assigned to an individual. An EIN is also permanent, meaning it does not change if the business changes ownership or is restructured. On the other hand, an SSN can change if an individual changes their name or moves to a new state.
Why Employers Need an EIN
Employers need an EIN for a variety of reasons. The primary reason is to pay taxes. Employers must pay both federal and state taxes, and they must have an EIN in order to do so.
An EIN is also necessary for employers to open a business bank account. Without an EIN, employers won’t be able to open a business bank account or apply for credit.
Why Employees Need an SSN
Employees need a Social Security Number in order to be paid. Employers must withhold taxes from the employee’s paycheck and report those taxes to the IRS. The employee’s SSN is used to match the tax withholding to the employee’s tax return.
An SSN is also necessary for employees to apply for certain benefits, such as Social Security, Medicare, and unemployment benefits.
Uses of EIN and SSN
Uses of EIN
- Pay Taxes: An EIN is used to pay taxes to the IRS and state tax authorities.
- Open Bank Accounts: An EIN is used to open a business bank account.
- Apply for Credit: An EIN is used to apply for business credit.
- Filing Tax Returns: An EIN is used to report business income on tax returns.
- Hiring Employees: An EIN is used to hire employees and pay taxes on their wages.
Uses of SSN
- Pay Taxes: An SSN is used to pay taxes to the IRS.
- Apply for Benefits: An SSN is used to apply for Social Security, Medicare, and unemployment benefits.
- Filing Tax Returns: An SSN is used to report an individual’s income on tax returns.
- Verify Identity: An SSN is used to verify an individual’s identity.
- Hiring Employees: An SSN is used to hire employees and report their wages.
What Happens if an Employer Uses an SSN Instead of an EIN?
Using an SSN instead of an EIN can have serious repercussions for employers. The IRS may impose fines and penalties for improper reporting. Additionally, employers could be held liable for any unpaid taxes or employee wages.
For these reasons, it’s important for employers to understand the difference between an EIN and an SSN and use the correct number for each purpose.
Conclusion
The Employer Identification Number (EIN) and Social Security Number (SSN) are both nine-digit numbers issued by the federal government. However, they serve different purposes and should not be confused. An EIN is used to identify a business, while an SSN is used to identify an individual. Employers must understand the difference between the two and use the correct number for each purpose in order to avoid fines and penalties.