Having a taxpayer identification number (TIN) U.S. is essential for residents, businesses, and other entities. However, TIN in the U.S. can be a confusing and complex topic for some people.
Worry no more; we will provide complete information regarding what a TIN is in the U.S., the importance of having a TIN, the types of TIN, and how to obtain it without a hassle. Read on!
What is a Taxpayer Identification Number?
Taxpayer identification numbers (TINs) in the U.S. are unique numbers assigned to businesses and individuals for tax reporting purposes.
These numbers are assigned by either the Social Security Administration (SSA) or the Internal Revenue Service (IRS) and used to identify taxpayers so that their transactions with the IRS can be tracked and monitored. Also, these numbers help prevent fraud by ensuring that the taxpayer is correctly identified.
There are three primary types of TIN in the U.S.:
- Individual Taxpayer Identification Number (ITIN)
- Employer Identification Number (EIN)
- Social Security Number (SSN)
The taxpayer identification number (SSN, ITIN, or EIN) must be included on all tax returns and other paperwork sent to the IRS. Taxpayer must also give their taxpayer identification number to everyone else who uses it on any returns or paperwork they send to the IRS.
Why Is Having a Taxpayer Identification Number Important?
Having a TIN is not only essential for ease of tracking and monitoring by the IRS, but it also helps you:
1. File Taxes
It is important to have a tax identification number when filing taxes in the United States. A TIN is needed for filing income taxes, avoiding penalties, and keeping track of deductions.
For businesses, the EIN acts as an identifier when engaging with other entities. Your EIN will be proof of transactions for tax reporting. Having an EIN can add credibility to your business, streamlining business loan applications and payroll outsourcing. Moreover, you will need an EIN to facilitate the 401(K) plan for your employees.
On the other note, an ITIN is issued for individuals to those who are obliged to have a U.S. taxpayer identification number but are not qualified to receive a Social Security Number (SSN), such as foreign immigrants. ITIN is simply used for tax reporting purposes and could not be used to authorize people to work and live in the U.S.
2. Update Your Company Information
Having a TIN is also important when it comes to updating your company information. The TIN serves as the unique identity of the business and is used to identify and verify the company when submitting updates such as changes in address, ownership, or payment details.
3. Variety of benefits from SSN
Unlike ITIN, SSN is specifically allocated to the U.S. citizens and authorized non-citizens only. It is also not only used for filing tax returns but also for supporting citizens in terms of accessing a wide range of services provided by the US government and its partners. SSN will enable U.S. citizens to:
- Open a personal bank account
- Get hired for a job
- Applying for a passport, driver’s license, federal student loan, and medicare
Understanding the Different Types of TIN and Their Structure
As mentioned, Individuals, businesses, and other organizations all need to register for a TIN to pay taxes. Understand their differences below!
Employer Identification Number (EIN)
Employers, such as sole proprietorships, small businesses, corporations, LLC,s and other business entities must follow A 9-digit structure shown below:
Individual Taxpayer Identification Number (ITIN)
Individual taxpayers in The U.S. have to also abide by a 9-digit format, as follows:
- The number will always begin with 9.
- 4th and 5th digits ranged from 50 to 65, 70 to 88, 90 to 92, and 94 to 99.
Social Security Number (SSN)
SSN is comprised of 9 digits, with a format of XXX-XX-XXX. SSN is randomly assigned since 2011. Preceding the year, the numbers are assigned based on geographical location. Compared to the previous system, randomized SSNs eliminate the geographical aspect, reducing the possibility of identity theft and extending the longevity of the numbers.
How to Obtain a Taxpayer Identification Number?
Different types of taxpayers have to take different steps and approach different authorities to obtain a Taxpayer Identification Number.
- Social Security Number (SSN): submit form SS-5 (“Application for Social Security Card”). You can apply online, but you will have to visit a Social Security Administration (SSA) field office to complete the process.
- Individual Taxpayer Identification Number (ITIN): submit IRS form W-7(“Application for IRS Individual Taxpayer Identification Number“), followed by attaching your federal income tax return and other necessary documents such as passport. You may either mail or present the documents directly to a walk-in office, as informed on the form.
- Employer Identification Number (EIN): submit form SS-4 (“Application for Employer Identification Number”), by mail or fax as informed on the form.
All in all, having a TIN in the U.S. is undoubtedly important for tax paying, especially for businesses. However, not every company has the time and resources to go through the hassle of taxation. But worry no more; there is another alternative for a hassle-free tax payment system with Peakflo!
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In Peakflo, our taxation features include the following:
- Tax breakdown for invoices and bills.
- Automated reminders for WHT collections.
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So, why wait — partner with Peakflo now to get a simple, hassle-free taxation automated system for Tax Identification Number. Free download our e-Book here to learn more about automation for CFOs and how they can simplify complex processes and streamline finance operations, including tax-paying!