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ITIN vs EIN: Clearing Up the Confusion for Foreign Founders
- Sabih Shafi E.A
- 2 days ago
- 5 min read
What each number actually identifies
When starting a business in the United States as a foreign founder without a Social Security Number (SSN), it's crucial to understand what numbers identify what aspects of your new venture. An Individual Taxpayer Identification Number (ITIN) is issued by the IRS to individuals who are required to have a U.S. taxpayer identification number but do not have, and are not eligible for, an SSN. ITINs are generally used by non-resident aliens, their spouses, and dependents who file tax returns in the US without being employed here. An Employer Identification Number (EIN), on the other hand, is a unique nine-digit number assigned to businesses by the IRS. It's required for opening business bank accounts, filing taxes, and many other financial transactions involving your LLC.
As an Enrolled Agent, I often see confusion when foreign founders try to navigate these numbers without proper guidance. They might think they need an ITIN before setting up their LLC or EIN, but that's not the case. The number you actually need depends on what you're trying to accomplish with it. For example, if you want to open a business bank account in the US for your foreign-owned LLC, you'll need an EIN.
Why your LLC needs an EIN, not an ITIN
Once you've decided to form a Limited Liability Company (LLC) in the United States as a non-U.S. person, one of the first steps is obtaining an Employer Identification Number (EIN). This number uniquely identifies your business entity and allows it to interact with the IRS, banks, and other financial institutions. An EIN is essential for opening a bank account, applying for loans, and filing taxes on behalf of your LLC.
It's important to note that while you might need an ITIN for personal tax purposes, it doesn't replace the necessity of having an EIN for your business entity. Many foreign founders mistakenly believe they should start with an ITIN because they can’t get an SSN, but this is a common misconception. As an Enrolled Agent, I often advise clients to focus on obtaining their EIN first so that they can move forward with setting up their LLC and its financial infrastructure.
When (if ever) you personally need an ITIN too
While your US-based LLC requires an Employer Identification Number (EIN), there are specific scenarios where you might also need an Individual Taxpayer Identification Number (ITIN). For instance, if you're a non-US person receiving income from sources within the United States and you're not eligible for or don't have an SSN, you'll likely need to apply for an ITIN. This includes situations like earning freelance income, rental income, or dividends from U.S.-based investments.
Additionally, if you plan on filing personal tax returns in the US due to your business activities, such as reporting foreign bank account information (FBAR) requirements, having an ITIN is crucial. However, it's important to understand that obtaining an EIN for your LLC does not preclude the need for an ITIN, and vice versa; they serve different purposes.
Why some services wrongly push an ITIN first
There are several reasons why some service providers might incorrectly advise foreign founders to obtain an Individual Taxpayer Identification Number (ITIN) before setting up their Limited Liability Company (LLC) with an Employer Identification Number (EIN). One common reason is that these services may not have a deep understanding of the IRS’s requirements for non-US persons. Another possibility is that they might be trying to simplify the process by focusing on what seems like the first step in obtaining identification from the IRS.
However, as an Enrolled Agent, I can tell you this approach often leads to unnecessary delays and confusion. The correct sequence starts with forming your LLC and then applying for its EIN before considering personal ITINs if needed. Misdirecting clients by pushing them towards getting an ITIN first can stall their business setup process significantly.
The correct sequence: entity, then EIN, then banking
The right way to establish a US presence as a foreign founder is to follow a clear and logical sequence of steps. First, you need to form your LLC in the United States. Once this legal structure is in place, you should apply for an Employer Identification Number (EIN) from the IRS on behalf of your newly created business entity. This EIN will allow you to open bank accounts and engage with financial institutions as a recognized U.S. business.
After securing your EIN, you can proceed to set up your company’s banking arrangements. This might include opening a business checking account or applying for a line of credit. It's important not to skip these steps or try to condense them in ways that don't align with IRS guidelines. Doing so could result in significant delays and complications.
Avoiding the delay this mix-up causes
Understanding the proper sequence—forming your LLC, obtaining an EIN, and then setting up banking—is crucial for avoiding unnecessary delays in launching your business in the United States. Many foreign founders mistakenly start by applying for an Individual Taxpayer Identification Number (ITIN) before forming their LLC or getting an Employer Identification Number (EIN). This can lead to significant hold-ups as they try to correct these mistakes later on.
By following the correct sequence, you ensure that your business is legally established and able to function smoothly from day one. As an Enrolled Agent, I recommend focusing on creating a solid foundation for your LLC before worrying about personal tax identification numbers or other details that might come up later in your business journey.
Frequently Asked Questions
Do I need both an ITIN and EIN?
You typically only need an EIN for your US LLC. An ITIN is required if you're filing taxes personally but not for setting up the entity.
When should I apply for my EIN?
Apply for your EIN immediately after forming your LLC to open a business bank account and file taxes on behalf of your company.
Can I use an ITIN instead of an SSN for my US LLC?
No, you need an EIN for your LLC. An ITIN is only used for personal tax purposes if you don't have an SSN.
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This article is general information, not individual tax advice. If you want to talk through your specific situation, book a free 15-minute review or call or text us directly.
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