What’s the Difference Between an EIN and a SSN?

An EIN and a SSN are both tax identification numbers issued by the IRS, but they’re used for different purposes and for different types of entities.

Picture it:

Jordan recently started a small graphic design business on the side while working a full-time job. At first, everything felt simple. Clients paid Jordan directly, and at tax time Jordan reported the income using his Social Security Number (SSN).

But as the business began to grow, Jordan ran into a few questions:

• Clients were asking for a completed W-9 form that would require him to list his SSN.
• Jordan wanted to open a separate business bank account.
• A larger company requested a tax ID number before a issuing payment.
• Jordan was considering hiring a part-time assistant.

Now Jordan wondered:

“Should I keep using my SSN, or do I need an EIN?”

If you're a sole proprietor with no employees, you can use your social security number (SSN) for tax purposes. Many choose to get an employee identification number (EIN) for privacy and to avoid sharing their SSN on business documents (like a W-9).

Here's some things to consider in whether or not to obtain an EIN for your business:

• Using an SSN is allowed in some circumstances
  As a sole proprietor with no employees, you could legally continue using an SSN for tax reporting.
• An EIN offers separation and privacy
  By applying for an EIN, you wouldn’t need to share your SSN with clients. It also may make the business feel more official and separate from your personal finances.
• Hiring changes things
  If you hire an employee, an EIN would be required for payroll tax reporting.
• Opening a business bank account might require an EIN
  Some banks prefer or require an EIN for business accounts, especially if operating under a business name.

Conclusion: If you own and operate your business by yourself, using a SSN may be a good way to go. Look through our considerations list above to decide if the EIN route is best for you.