What Is TIN? An in-Depth Guide
Have you been asked about a unique code on your official documents by your bank or government agency? It’s known as a Taxpayer Identification Number (TIN). If you’re wondering what is TIN and what its role is, our post will answer these questions in this in-depth guide.
During the registration of a company, you’re required to obtain and produce TIN. The code plays a significant role in your business in terms of tax reporting.
How? The Internal Revenue Service (IRS), the US tax body, uses TIN to identify taxpayers and is unique to a business or individual.
Individuals are issued a Social Security Number (SSN), which helps the IRS identify the taxpayer. A company with employees is issued with an Employer Identification Number (EIN).
Let’s dissect the topic to discover what TIN is, what its role is in a business, and where to find it.
What is a Taxpayer Identification Number?
A company Taxpayer Identification Number (TIN) is unique to a business or individual and is issued by the IRS to administer taxes.
Why TIN is Important to a Business
After establishing a business, you apply for TIN for the business and those in it from the IRS. For businesses to conduct business with each other, they must have a valid TIN validated by the other business.
If something goes wrong between the two businesses doing business, both companies are responsible for checking the validity of the other business's registration. The numbers are important as they ensure a company pays the necessary taxes from the business transaction or exchange of services.
Types of Taxpayer Identification Numbers
Taxpayer Identification Numbers vary depending on who is being issued to (business or individual). However, they’re all for tax identification purposes. The types of TIN are:
- Employer Identification Number (EIN)
- Social Security number (SSN)
- Individual Taxpayer Identification Number (ITIN)
- Adoption Tax Identification Number
- Preparer Tax Identification Number
1. Employer Identification Number (EIN)
The Employer Identification Number (EIN) is issued to every business operating in the US by the IRS. The business also receives a Federal Employer Identification Number (FEIN) that must be included in all reporting and communications with the IRS. These communications include end-of-year tax forms, W-2, or 1099.
The FEIN is equivalent to a Social Security Number. (SSN) but is held by the employer. Some tax laws might vary depending on the rules and regulations in the state in which the employer lives. Some states might require additional EINs, state income tax, or state unemployment tax, while others don’t. For instance, a state like Colorado requires an employer to have three separate EINS: the State Department of Labor and the State Department of Revenue. Here’s how to get EIN:
- Also known as a federal tax identification number, EIN identifies a business. Income-making estates and trusts also use EIN, which is reported on Form 1041, the US Income Tax Return for Estates and Trusts.
2. Social Security Number (SNN)
The Social Security Number was created in 1936 to help track individual worker earnings to determine Social Security benefits. It’s the most commonly used identification number in the United States of America (USA). The nine-digit number is divided into three parts:
- The first section is the area number assigned by geographic region.
- The second section is the group number, which ranges from 01 to 99 and is unique to each state, but not assigned consecutively.
- The final segment is the serial number, representing a straight numerical series of numbers assigned in order in every group. Originally, only some were required to apply for SSN, but only the individuals who chose to receive government benefits.
The Social Security Administration (SSA) passed laws in all states requiring all newborns to apply for SSNs as part of the newborn’s registration process. The number is assigned to an individual at birth, and SSA uses it to determine their retirement benefits. Hence, protecting the confidentiality of SSNs is very important. Here’s how to get an SSN:
- You must complete Form SS-5 and produce confirmation about your US citizenship, identity, and age or lawful foreign status. You can find more information on the Social Security Administration website. You can also visit your local Social Security office or call 800-772-1213 to fill out your SS-5 form; these services are free.
3. Individual Taxpayer Identification Number (ITIN)
Foreigners and non-employed parties who receive taxable income from US sources are required to file for taxes in the US. To apply for ITIN, individuals fill out IRS Form W-7. The number is only used for tax purposes, and it doesn't imply a change in immigration status or give immigrants the right to work in the US.
However, having an ITIN in place of an SSN means the individual is excluded from having the SSN and can’t be employed in the US. Thus, it’s important to understand how to identify an ITIN.
Both numbers have the same format, xxx-xx-xx, and each section is the same as defined above. The only difference lies in the ITIN areas (first three digits) begin with the number 9, and the next all group numbers (second two digits) start with the number 7. Here’s how to get ITIN:
- Complete IRS Form W-7, which is the form for application of Individual Taxpayer Identification Number. You need to produce documentation validating foreign status and the true identity of every applicant. Applicants can email the document alongside the Form W-7 to the address displayed on the form or walk into IRS offices to process the application. The application can also be processed through an Acceptance Agent approved by the IRS.
Who are Acceptance Agents? Acceptance agents can be accounting firms, banks, colleges, or financial institutions that the IRS approves to help applicants get ITINs. They review the applicant's documents and then forward them to the IRS for processing.
4. Adoption Tax Identification Number
When adoptive parents can’t obtain the child’s SSN to file their tax report, they apply for ATIN to complete domestic adoptions. The child being adopted must be a US citizen or permanent resident to qualify for the adoption. ATIN applies or comes into play when the adoption process is pending.
5. Preparer Tax Identification Number
Anyone who charges to complete tax returns for others must have a PTIN attached to each tax return filed. The IRS requires that each tax return a preparer completes must have PTIN.
Uses of TIN
Below is a list of the most common uses of a Tax Identification Number:
- When getting a Tax Clearance Certificate for your business.
- To open a Corporate Bank Account.
- To complete a foreign exchange transaction.
- When applying for trade licenses, import and export licenses.
- When applying for Government loans.
- When applying for a Certificate of Occupancy.
- Filing annual income tax returns.
- Filing annual summaries, especially those who have to collect tax at source.
- Accounting for Value Added Tax (VAT) where the applicant is registered.
- This is for computing capital gains tax on the sale of capital property.
- Motor vehicle registration.
Who Needs TIN
A TIN must be produced on all tax-related documents, such as returns and statements. For instance, a Tax Identification Number must be furnished in the following situations:
- Filing tax returns.
- Claiming of treaty benefits.
The beneficiary of a claim must produce a TIN on the withholding certificate when claiming for the following:
- Tax treaty benefits, besides income from marketable securities
- Exemption for connected income
- Exemption for some annuities
Where to Find Your TIN
Finding your Taxpayer Identification Number (TIN) depends on your location as an individual or business. Here are the different ways to find your TIN, which you need to complete various tasks:
- US-based individuals - As an individual, your TIN is your Social Security Number.
- US-based entities like businesses - TIN is the equivalent of a Federal Employer Identification Number (FEIN). However, sometimes, the TIN you need might be an employer's. If you need more help, consult with a tax professional for guidance to help you achieve your goals.
- Foreigners or people based outside the US - As a US citizen living abroad, you must provide a TIN (SSN). Non-US citizens living outside the US can produce a W-9 if they have a TIN or a W-8 if they don't have a TIN.
Form Your LLC with Foundeck Today
Foundeck offers a range of fast and efficient online company formation services, allowing you to register a business structure of your choice quickly from anywhere and keep it compliant. To get started, kindly contact us here.
Freqeuntly Asked Questions
What is the meaning and purpose of TIN?
TIN stands for Taxpayer Identification Number, issued by the Internal Revenue Service (IRS) and used in tax law administration.
Who is TIN issued to?
Taxpayer Identification Numbers are issued to individuals or business entities by the IRS for tax purposes. Individuals get a Social Security Number, which they use to file personal income returns. As for businesses, the employer obtains an Employer Identification Number (EIN), which can be an individual or entity.
What are the most popular types of TIN?
The most common types of TIN include Social Security Number (SSN), Employer Identification Number (EIN), and Individual Taxpayer Identification Number (ITIN)
How can I identify a TIN?
You can identify your TIN depending on whether you’re an individual or a business entity. Your Social Security Number (SSN) is your TIN for an individual. For entities, an Employer Identification Number (EIN) is your TIN.
In Summary
A taxpayer identification number (TIN) is a requirement for working in the US. The IRS issues the taxpayer identification number to identify taxpayers and track whether they’re reporting and paying the right taxes.
Individual taxpayers get a Social Security Number (SSN) through the Social Security Administration (SSA), which they need to file personal tax returns. If you own a business, apply for an Employer Identification Number (EIN) to file your company’s tax returns.
The IRS uses TIN to track personal and business transactions to help centralize tax information and make tax administration seamless. TIN helps monitor business activities by ensuring all related tax data is reported to the IRS when in or out of state. Do you have any question on TIN? Kindly contact one of our Foundeck experts here for help today.
