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What Is a Tax Identification Number (TIN)?
To the United States government, a taxpayer identification number, or TIN, is the number by which a taxpayer is identified as unique and separate from all other taxpayers. Taxpayers can be corporations, businesses, or single individuals. It only makes sense, then, that there are different types of TINs and reasons or uses for them.
Why Are Tax Identification Numbers (TIN) Important to Businesses?
One of the first things many businesses do when established is apply for tax identification numbers for each of the entities within the business with each of the relevant governmental agencies. In order to conduct business with another business, they may each be held accountable for validating the other business’s registration or identification numbers to pay the necessary taxes that result from the business transaction or exchange of services.
Types of Tax Identification Numbers
Before we look at how HR uses TINs, let’s explore the different types.
Employer Identification Number (EIN)
Every business must register with the Internal Revenue Service (IRS) and receive a Federal Employer Identification Number, or FEIN, to include on all reporting and communications with the IRS, such as year-end tax forms W-2 or 1099. The FEIN is the employer equivalent of a Social Security Number.
Depending on the rules and regulations of the state the employer is located in, there may or may not be requirements to apply for additional EINs for state income tax or state unemployment tax. For example, in the state of Colorado, an employer is required to have three separate identification numbers for the IRS, the State Department of Revenue and the State Department of Labor.
Social Security Number (SNN)
Created in 1936 as a way to track individual worker earnings for use in determining Social Security benefits, the Social Security number is the most commonly used identification number in the country. The nine-digit number is composed of three parts. The first part is the area number and is assigned by geographic region. The second part is the group number, ranging from 01 to 99, and are issued in bulk to each state (but not assigned consecutively). The last part is the serial number, which represents a straight numerical series of numbers that are assigned in order within each group.
It was not originally required for everyone to apply for the SSN; only those individuals choosing to receive government benefits would do so. Between 1987 and 1991, the Social Security Administration (SSA) put agreements in place with the states to include applying for a newborn’s SSN as part of the state’s newborn registration process. Because this number is assigned to an individual at birth and is the number the SSA uses to determine retirement benefits, it is no wonder that protecting the confidentiality of the Social Security Numbers is so important.
Individual Taxpayer Identification Number (ITIN)
Non-resident, non-employed individuals who receive taxable income from US sources are required to file US taxes. They fill out IRS Form W-7, the application for an Individual Taxpayer Identification Number, or ITIN. This number is used for tax reporting purposes only and does not imply a change in immigration status or right to work in the U.S.
Having an ITIN instead of a SSN means that the individual is excluded from having the SSN and cannot be employed, so it is important to understand how to identify an ITIN. Both numbers are formatted the same, xxx-xx-xxxx, and the parts as defined above are the same. The difference is that all ITIN areas (first three digits) begin with the number 9, and all group numbers (second two digits) begin with the number 7.
How TINs Are Used
Now that we are familiar with each type of number, let’s look at how HR uses them.
Just as Accounts Payable requires a W-9 from any new business to add it as a payee, Human Resources and Payroll are required to obtain the individual TIN or SSN before processing any paychecks. We are responsible for gathering and housing a myriad of personal identifiable information (PII), as well as organizing it for reporting requirements, while protecting confidentiality. For a long while, many employers used the SSN as the employee identification number, disregarding or uneducated about the confidentiality risks of using SSN as the employee number.
Employer Tax Filings
Employers are required to file taxes just like the individual taxpayers; these may be owed on the federal, state, or even county level. TINs are used to ensure that the corporation receives the appropriate credit for taxes paid and required reports filed.
Employers are required to file different reports with different agencies on the amounts withheld from employee earnings. Some are for taxes, some paid by the employer, and some are paid by the employee. There are also informational reports, i.e. new hire reporting, 401(k) census reporting, etc., that require TIN information. To appropriately assign the taxes withheld from payroll to be deposited toward the correct individual taxpayer account, the reports include each employee’s TIN or SSN.
Questions You’ve Asked Us About Tax Identification Numbers
A Social Security Number (SSN) is a type of tax identification number, so the SSN is a TIN, but not all TINs are social security numbers.
Yes and no. In the United States, each individual taxpayer is expected to keep the first number they are assigned, typically the SSN, for life. However, with the rise in identity theft, the Social Security Administration has been issuing new identification numbers to individuals who can prove irreparable damage to their originally issued identification number. Also, if an individual relocates to another country, that individual may need to apply for a new tax identification number in that country in order to work.
A twenty-something year payroll veteran, Christine was adopted into the payroll profession from Human Resources when it was discovered that she had a knack for rules, details and numbers. She is a results-driven and accomplished global payroll enthusiast with broad experience in both domestic and global payroll teams, ensuring accurate payroll operations through efficient leadership of staff. Joining the American Payroll Association (APA) and getting her CPP certification in 2011, Christine has thrown herself head-first into volunteering for the APA at the local, state and national levels. She obtained her Global Payroll Certification in 2011 as one of the first 50 recipients, and her professional vision is to lead the drive towards global payroll quality assurance procedures that provide simple solutions for compliance, accuracy and timeliness.