What Is a Tax ID and Why Is It Important for Your Business in the United States?

When a Latin American entrepreneur decides to expand their business to the United States, one of the first questions that comes up is: what is a Tax ID, and what is it for?

Whether you're planning to open a bank account, register your LLC, file taxes, or hire employees, you’ll come across this term. The Tax Identification Number (Tax ID), as the name suggests, is a number that allows you to interact legally with the U.S. tax system.

What Is a Tax ID?

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The Tax ID (Taxpayer Identification Number) is a unique number issued by the Internal Revenue Service (IRS) or the Social Security Administration (SSA) in the United States.

Its main purpose is to identify individuals and legal entities within the tax system to:

• File tax returns
• Pay federal and state taxes
• Open bank accounts
• Manage contracts or licenses
• Hire employees legally

In other words, the Tax ID functions as your "tax identity" within the U.S.

Types of Tax ID in the United States

There are different types of Tax ID depending on whether you're an individual, a business, or a non-resident foreigner.

1. SSN (Social Security Number)

• Issued by the SSA (Social Security Administration)
• Reserved for U.S. citizens, permanent residents, and certain authorized workers
• Used both for tax identification and access to Social Security benefits
• Example: An employee residing in the U.S. receiving wages

2. ITIN (Individual Taxpayer Identification Number)

• Issued by the IRS
• Designed for foreigners who do not qualify for an SSN but need to file taxes in the U.S.
• Can be used by:
  • Foreign entrepreneurs
  • International investors
  • Dependents listed on tax returns
• Example: A freelancer in Mexico earning income from U.S. clients who must report it

3. EIN (Employer Identification Number)

• Issued by the IRS
• This is the tax ID for businesses, similar to the RFC in Mexico or the RUC in other Latin American countries
• Required for LLCs, corporations, partnerships, or any business hiring employees or filing business taxes
• Example: An LLC registered in Delaware wanting to open a U.S. bank account

When Do You Need a Tax ID?

Depending on your situation, you may need one type of Tax ID or another. Here are a few scenarios:

• Freelancers and digital creators in LATAM selling services to U.S. clients → need an ITIN to report income
• Foreign companies creating an LLC in the U.S. → require an EIN to operate legally
• Foreign employees authorized to work in the U.S. → receive an SSN
• Startup founders in LATAM seeking U.S. investment → will need an EIN to formalize the business structure

Benefits of Having a Tax ID

Getting a Tax ID isn’t just a requirement—it opens up important opportunities:

• Legal compliance → Avoid IRS issues by properly reporting and paying taxes
• Access to financial services → Use an EIN or ITIN to open bank accounts and process payments in the U.S.
• Business credibility → A Tax ID builds trust with investors, customers, and partners
• Ability to hire employees → An EIN is required to legally run payroll in the U.S.
• Tax advantages → Depending on your structure, you may qualify for deductions or international tax treaties

Tax ID vs. Other Registrations

Many entrepreneurs confuse the Tax ID with other concepts. Let’s clarify the differences:

• Tax ID vs. Passport number: Your passport is for travel, not for tax purposes
• Tax ID vs. State business number: Some U.S. states assign a local number to your LLC, but this doesn’t replace the EIN
• Tax ID vs. Apostille or translation: Apostilles validate international documents but don’t serve as a tax ID

How to Get a Tax ID in the U.S.

The process depends on the type of number you need:

Getting an SSN:

• Apply through the Social Security Administration (SSA)
• Only available to citizens, residents, or those with work visas

Getting an ITIN:

• Apply directly with the IRS using Form W-7
• You must provide proof of identity and documentation showing the need to file taxes in the U.S.

Getting an EIN:

• Apply with the IRS using Form SS-4
• Can be done online (if you have an SSN) or through an authorized agent (if you are a foreigner without an SSN)

At Openbiz, we help founders and entrepreneurs from LATAM obtain their EIN quickly and 100% online—no travel to the U.S. required.

Common Mistakes When Managing a Tax ID

• Thinking the LLC registration automatically includes an EIN
• Confusing the ITIN with the EIN: one is for individuals, the other for businesses
• Not filing taxes even after getting a Tax ID (which may lead to penalties)
• Submitting incorrect information on the application form
• Delaying the process: without a Tax ID, you won’t be able to open bank accounts or issue invoices in the U.S.

Why the Tax ID Matters for LATAM Entrepreneurs

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For founders, freelancers, and startups in Latin America, the Tax ID is the key that unlocks the U.S. market.

With it, you can:

• Issue valid invoices
• Sell on marketplaces like Amazon or Etsy
• Get paid through Stripe or PayPal without limitations
• Comply with tax regulations
• Build trust with international clients

The Tax ID is more than just a number—it’s the gateway that allows entrepreneurs and businesses to operate legally in the United States.

Whether you need an SSN, ITIN, or EIN, having this number gives you access to a large market, financial services, and the chance to scale your business internationally.

The key is knowing which type of Tax ID you need, how to get it, and when to apply for it during your expansion process.

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