The Internal Revenue Service requires individuals and entities to have a Tax Identification Number, or TIN, and banks can't open accounts for individuals or entities that don't have TINs or that refuse to provide TIN information to the bank. However, you may not need to apply for a separate TIN for your business, as the IRS allows the owners of certain business entities to use their own Social Security number as the TIN.
Tax Identification Numbers
There are two types of TINs: personal TINs and nonpersonal TINs. The Social Security Administration issues personal TINs, which are commonly called Social Security numbers. The Internal Revenue Service issues TINs for businesses and nonprofit groups: These numbers are also known as Employer Identification Numbers, or EINs. Tax law requires that people and entities have TINs, but having a TIN doesn't necessarily mean a person or business has to pay state or federal taxes.
Sole proprietors are individuals who run their own businesses. The IRS allows sole proprietors to use their own Social Security number as the TIN for the business; banks open accounts for these businesses on that basis. Married sole proprietors can elect to list a spouse as an account signer without having to change the business structure or obtain an EIN. If a sole proprietor wants to add a nonspouse as an account signer, the business structure must change and the entity must obtain a separate TIN.
Generally, the IRS requires any business entity that has employees to have its own TIN. General partnerships are comprised of partners with equal ownership rights; a partnership may not have any actual employees. However, the IRS requires general partnerships to have EINs. These entities don't actually have to pay taxes because partnerships use the pass-through taxation method. Every member of the general partnership receives a share of the company's profits. The individuals must pay income tax on their share of the profits, but the entity itself has no tax liability.
The USA Patriot Act requires banks and other financial institutions to record information that identifies each business and each account signer. Aside from providing the bank opening a new account with the businesses TIN, each account signer must provide the bank with his own TIN. Documents showing that a business has registered to operate in the state where it plans to open the account are also required. Individual signers must provide the bank with government-issued identification, full name, date of birth and a physical address.
Do I Need a Federal EIN for Each Business I Open?
The purpose of an Employer Identification Number (EIN), also called a Federal Tax Identification Number, is to identify a business entity. Just...
How to Open a Business Account as a Sole Proprietor
Even though as a sole proprietor you are your business and your business is you, it is still very important that you...
What Do I Need to Open a Business Bank Account?
One of the first things the owner of a new business has to do is establish a relationship with a bank. The...