Identification numbers can be quite a hassle to deal with, especially in countries like United Stateswhere multiple types of them are used on daily basis. It does not help that many of them can be used interchangeably for various purposes, and in many cases it is difficult to define which number takes priority when it comes to using them. Knowledge of which identification number is the correct one for which purpose and being able to recognize them can go a long way in simplifying the troublesome process of dealing with tax related matters. After all, inappropriate use is just asking for Internal Revenue Service attention, which is unlikely to be a result one would wish for.
EIN vs TIN
To make it brief, the term TIN refers to tax identifying number issued by Social Security Administration or Internal Revenue Service or rather to the entire set of tax identifying numbers that find their use in business tax returns, tax returns and other tax-related documents. Different TIN’s might be used for a designed purpose or be applicable interchangeably to some forms. Those circumstances might awaken a collector’s desire in some, however the matter is not so simple as it is quite difficult to be a possessor of all TIN’s at the same time.
EIN on the other hand is one of aforementioned TIN’s. The simplest way to describe it is to call it Social Security Number for business.
Types of identification numbers
In United States the most commonly encountered identification numbers that can be recognized as taxpayer identification numbers (TIN) are:
- EIN – known under many names, Federal Tax Identification Number, Federal Employer Identification Number or simply Employer Identification Number.
Make no mistake, these terms do not refer to separate tax id numbers, but instead to a single one, which is essentially a social security number, but applied for by a business entity. It is required for opening of business bank account, and it has to be included on tax forms when business entities file them. Employer identification number EIN is a nine digit number following format of:
- SSN – Social Security Number, tax identification number for individuals issued by Social Security Administration. Social Security Number SSN is a nine digit following format of:
- ITIN – Individual Taxpayer Identification Numbers are issued by Internal Revenue Service for those who are required to have taxpayer identification number within United States, however are not eligible for SSN. The purpose of this number is to allow those not eligible for SSN to comply with United States tax law and allow them to file tax returns. Individual Taxpayer Identification Number ITIN is composed of nine digits following same format as SSN.
- PTIN – Preparer Tax Identification Number or Preparer Taxpayer Identification Number is issued by Internal Revenue Service for paid tax preparers or accountant for the tax purposes. To be precise it is used when preparing federal tax returns and other tax related documents by tax preparer. Preparer tax identification number is composed of 8 digits preceded by letter P:
- ATIN – Adoption Taxpayer Identification Number is a temporary tax id number issued by Internal Revenue Service for an adopted child without Social Security Number. ATIN is a unique nine digit number. ATIN can be of use in order to claim adopted child as a dependent when you file taxes.
Another TIN that you might encounter in United States is Foreign Tax Identifying Number (Foreign TIN or FTIN), which is essentially a tax identifying number issued by your country of tax residency if you are from country other than United States. It might be required in order to complete some of the forms that Internal Revenue Service issues.
EIN or employer identification number finds its use in filing business tax returns, opening business checking accounts or applying for licenses as well as opening merchant accounts. As previously stated, this number is issued for businesses, however not all of them require it to function. Companies without employees can file their taxes using just Social Security Number – this applies mostly to sole proprietorships and limited liability corporations (LLC). A complete list of entities that can receive EIN includes employers, trusts, partnerships, non-profits, sole proprietors, corporations, government agencies, business entities and even estates of deceased individuals.
Besides the format of nine digits, it is possible for EIN to appear followed by letter P and a series of digits. Such case might occur in case of employee plans.
EIN can be applied for in many ways. First one being fax, by filling out ss-4 form and faxing it to the state fax number. Be wary, as you must ensure that information filled out is up to date and completely correct. Expected time to receive EIN using fax is four to five days.
Second one is online application through the Internal Revenue Service website. It is quick and simple way allowing to easily check for any errors and make sure that all required information is filled. As soon as sent information is validated, the applier will receive EIN with the whole process taking one or two days.
Third way is to use telephone by calling designated number. This way requires filling out the Third Party Designee on the ss-4.
Fourth and frankly speaking the slowest way is to apply through the mail. It is done by filling the form ss-4 available at the Internal Revenue Service office. The issued EIN will be mailed to your physical location stated in the filled form once the verification of the submitted ss-4 is done.
Applying for TIN
Applying for different TINs involves filling different forms and in case of SSN – applying to different authority.
- SSN requires filling out SS-5 form and applying to Social Security Administration.
- ITIN requires filling out W-7 form and applying to Internal Revenue Service.
- ATIN requires filling out W-7A form and applying to Internal Revenue Service.
- PTIN requires filling out W-12 form and applying to Internal Revenue Service.
Wrong TIN – consequences
Having successfully completed all formalities and becoming an owner of a business is not the end of trouble, quite the opposite as an owner of business you and your accountant/preparer will be facing something seemingly simple, yet incredibly baffling in practice – ensuring that all reported TINs are correct. This might not be as simple as it seems, however, as mistakes might occur not just due to our own errors but also those of others.
Nowadays there are many ways to verify TINs online with plenty of tools available, but this tedious process might still result in a few mistakes and consequences await for those who drop their guard. TIN discrepancy can be penalized with a fee along with B-notices, penalties for wilful disregard. Do remember that a fee will accrue interest until case is deemed void after validation by the IRS or until corrected returns are filed.
But caution is required not only for tax returns, any employee database along with their SSN also requires caution, after all it is not so difficult for a single mistake to slip past and this may also bring about unpleasant consequences. Internal Revenue Service may charge you a cash penalty for each time you are found filing wage report with incorrect SSN of your employee. Granted, this fee can be waived should you provide justifiable causes for mistake that happened but it is a risk that no one should wish to take. Due to aforementioned reasons it is extremely important to remain cautious whenever any identification number is involved. Making use of official online verification tools can go a long way inhelping avoid any troubles that might result from a typographical error or a moment of carelessness.