Sorting the confusion between SSNs,TINs, ITINs, and EINs

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If you are confused regarding taxpayer identification numbers, don't feel bad.  Although they are rather straight-forward and it is "technically" clear which you need in a particular situation, they are nonetheless confusing to lay persons, and even professionals that do not routinely apply for assignment of these numbers.  

Just the term Employer Identification Number (EIN) creates confusion, since it is not limited to just employers.  In fact, for this very reason, some financial companies. brokers, and insurance companies will not, on their forms, refer to an EIN, using instead the term Taxpayer Identification Number (TIN), when they clearly are requesting the former and not the latter.  Why?  The only explanation is that they know that your trust, for example, isn't an employer, and you will become confused that the request doesn't pertain to your trust.

There is another example of this type of practice regarding warning on tanks and tank trailers. "Flammable," right?  Well, except for the fact that there is, or at least was, technically no word, "flammable!" The correct word is "inflammable."  To avoid confusion, manufacturers use the "wrong" word rather than the "right," and for good reason- we wouldn't someone pounding, heating, or setting ablaze a tank that was labeled "inflammable," thinking incorrectly that it wouldn't burn or explode, right? In that same way, financial services companies use a more common reference Tax Identification Number rather than Employer Identification Number to "avoid" confusion. 

So let's see if we can clear any confusion.

What are Tax Identification Numbers? 

For the IRS to conduct its business, it must have an easy way to identify each individual, trust, and business or non-business entity. To do this, the IRS requires each individual and entity to have a Tax Identification Number. While most individuals use their Social Security Number (SSN) for filing taxes, most businesses and non-business entities, like trusts, must have a special tax identification number instead.

Please note that  we are referring generally to tax identification numbers.  There is a specific Taxpayer Identification Number (TIN) which the Service usually designates as (ITIN) for "Individual" Taxpayer Identification Number.   

SSN, ITIN or EIN: What’s the Difference?

There are three main categories of tax ID numbers: Social Security Numbers (SSN), Employer Identification Numbers (EIN) and Individual Taxpayer Identification Numbers (ITIN).  SSNs and ITINs are used for individuals. Generally, the ITIN is for those not eligible for an SSN, such as non-resident aliens or resident aliens not yet eligible for a social security number. 

For businesses and non-business entities, like trusts, the EIN is the most important tax identification number. Despite the name including "employer," it suits all businesses, or non-business entities such as a trust, even those with no employees. 

So one of the biggest clues what you need is "to what are you referring as the owner or beneficiary of the asset, account, or benefit?"  If you are referring to a trust, use the EIN for the trust.  

The trust usually uses your social security number if you are the Settlor/Grantor of a revocable trust.  When the trust qualifies as a "Grantor Trust,"  it is a disregarded entity which uses the Grantor's social security number.   

If the Trust is irrevocable, the trust may have a separate EIN, so you will need to either: 1) refer to the Certificate of Trust which will identify the EIN; or, 2) ask your attorney or accountant that obtained the EIN. Most attorneys make clear on the Certificate Trust is the irrevocable trust is treated by the IRS as a separate entity requiring an EIN, and typically will obtain one for the trust. 

Tax ID Numbers for Businesses

Most businesses require a special tax identification number for their filings with the IRS. Many other legal documents for businesses, including loan applications, bank account applications and permit applications, also require a tax identification number. Therefore, one of the first actions to take after setting up your business is to apply for an EIN.

Are There Exceptions?

There are cases in which business owners can use their own social security number rather than an EIN for filing taxes for their business. The two exceptions are sole proprietorships and certain LLCs, as long as the LLC does not have any employees. In these cases, the business owner can use his or her SSN in place of the EIN. However, even sole proprietors might need a EIN under certain circumstances, such as for excise tax returns or pension filings.

You have your choice of business structure, which might impact what type of Tax Identification Number you need. Start your tax ID application to receive your EIN number by filling out the form here. Alternatively, complete a sole proprietorship application and use your social security number instead. Our support team is available 24/7 to assist you with any questions you might have about filing these applications.

Do I Need an ITIN or Social Security Number to Get an EIN?

There are ways to get an EIN for your company without having either a Social Security number or an ITIN, but in most cases, you do use those other tax identifiers in your application. That’s because the IRS does require the person who takes responsibility for the registration to have one of these. If you do not have either identifier, you have two options.

• File for either a SSN or ITIN before applying for an EIN so that you can be listed as the point of contact for the company.
• Engage an accountant or lawyer willing to act as that contact for the company and submit their information so they can receive paper records regarding your EIN.

What Are the Differences Between a SSN and an ITIN?

The main difference is that the Social Security number is for those who are eligible for Social Security benefits, either at retirement or in the event of a disability. For residents of the U.S. and non-residents who own businesses in the country, the ITIN provides and individual tax identification option outside of Social Security. This is an important avenue for those who do not qualify for a Social Security number.

Can I Use a Tax ID Number for More Than One Business?

Generally, no. If your business needs its own EIN for any reason, you need to use a unique one that is just for that entity. Entrepreneurs with multiple companies they own as the sole owner, either through sole proprietorship or a single-member LLC, might have the option of lumping all their business taxes under one tax return by using their Social Security numbers and filing with Schedule C. Even then, if any of those businesses hire employees or seek bank loans, they will need their own EIN, and they will not be able to share.

Still Confused?

Your attorney or accountant will usually help you quickly identify and locate the correct number.  Rather than create additional work later, we suggest that clients fax or email the forms they are completing with an indication what they are trying to accomplish.   We usually will simply insert the correct "number" and send it back for completion.  Regardless, if you are confused, ask for help!

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Ohio Repeals Estate Tax

It is now official: Ohio officially abolished its estate tax when Republican Governor John Kasich signed the state budget today (June 30, 2011).  The estate tax provision of the new law does goes into effect on  January 1, 2013.

This cliffhanger is reminiscent of the federal estate tax law change that eliminated the federal estate tax for just one year in 2010. The federal estate tax came back Jan. 1, 2011, albeit with a generous individual exemption of $5 million. The Ohio estate tax repeal is intended to be permanent, once it becomes effective.  In other words, it does not "expire" or "sunset," and will remain the law unless changed by a future Ohio legislature and Governor.

“By repealing this suffocating tax, Gov. Kasich and the Ohio legislature have made their state stronger – and made it a model for the remaining 21 other states who continue to impose state estate or inheritance taxes, including three of Ohio’s neighbors: Indiana, Kentucky, and Pennsylvania,” says Dick Patten, president of the American Family Business Institute, a no-death-tax lobbying group.

For a map showing state estate taxes and rates for 2011, click here.

For the years 2011 and 2012, Ohio remains as one of 22 states that along with the District of Columbia currently have estate and/or inheritance taxes.  Among estate tax states, Ohio currently has the lowest exemption amount per estate, just $338,333, but the lowest top rate at 7%. 

Once the Ohio repeal becomes law, New Jersey will have the distinction of being the state with the lowest estate exemption at $675,000.

For more information on the efforts of other state legislatures to minimize estate taxes, click here.

Private Nurses for Home Care

Patricia B. Gray, contributing writer for Money Magazine has written an excellent article regarding private nursing for home care.  She introduces this increasingly common alternative to institutional care for seniors:

You may think of private nurses as a luxury for the ultra-rich, like a butler or personal chauffeur. But hiring in-house medical care has become an increasingly viable option for regular folks too.

You can use a nurse to ease the transition from hospital to home after surgery or a major illness, or even to administer chemotherapy if you want to stay out of a clinic or hospital. Visits from a private nurse can help your elderly parent remain in his or her own house safely.

Care at home can be a less expensive option than an extended stay in a nursing facility, says Kathleen Kelly, executive director of the Family Caregiver Alliance, a San Francisco nonprofit. Still, the cost can add up quickly, and you may have to cover most of it yourself. So it pays to know whether you need a nurse and how to pick one.

Insurance Department Helps Locate Missing Life Insurance Policies

If you suspect a deceased loved one has a life insurance policy that you cannot locate, there is a service through the Ohio Department of Insurance that can assist in identifying and locating the policy.  The Ohio Department of Insurance’s missing life policy search service is a comprehensive search service that assists Ohio residents, and the families of deceased Ohio residents, in locating lost insurance policies purchased in the state. The search identifies the existence of any life insurance policies or annuity contracts purchased in Ohio and issued on the life of, or owned by, a deceased person.

Since its implementation in September of 2009, the missing life policy search service has had 682 valid search requests, and have matched 442 polices with their rightful owners.  “This is a great program that works for the consumers of Ohio to help them locate life insurance dollars to which they are entitled,” Ohio Lieutenant Governor and Department of Insurance Director Mary Taylor said in a release. “It’s great that Ohio’s life insurance companies are able to work together, along with the Ohio Department of Insurance, to perform this service. These numbers are amazing and we encourage Ohioans to continue to submit their search requests to the Department.”  

Executors, legal representatives, or members of the deceased person’s immediate family may file a search request with the Department.  To submit a request, visit www.insurance.ohio.gov   to print out the request form.  Have the form notarized, attach a copy of the certified death certificate, and mail it to the Department.

The Department forwards the search requests and supporting documentation to all Ohio-licensed life insurance companies within 25 business days of submission. If an insurance company has information about an in-force individual insurance policy on the life of the deceased person or an individual annuity contract where the deceased person is an annuitant, the insurer is required to take action to administer the policy and/or contract according to its terms.  If any money is to be paid to a beneficiary, the insurance company will contact the beneficiary directly. In this case, the company has 21 days to notify the consumer after contacting the Department.

Ohioans with questions about life insurance can call the Department's toll-free consumer hotline at 1-800-686-1526. A life insurance informational toolkit is also available on the Department's website at www.insurance.ohio.gov. The toolkit provides tip sheets, publications, and links to other helpful web sites.

ABC News Rountable Discusses Family Eldercare

This week, "ABC World News with Diane Sawyer" launches a special series, focusing on the sensitive issues surrounding eldercare. As part of the series, Sawyer hosted a roundtable on the subject with Virginia Morris, author of "How to Care for Aging Parents"; businesswoman Martha Stewart, who partnered with Mount Sinai to open an eldercare center in 2007; and noted geriatricians Neil Resnick and Marie A. Bernard.

The group discussed everything from driving to medication to the stress that's placed on caregivers.

You can watch each of the episodes, as well as read the accompanying articles here.