Tax Identification Number (TIN): What is it and does my business need one?

What is a Tax Identification Number (TIN)?

A Tax Identification Number (TIN) is a unique nine-digit identification number assigned by the Internal Revenue Service (IRS) to individuals and businesses for tax purposes. This number is essential for filing taxes, reporting income, and conducting financial transactions with the government. It helps ensure compliance and accuracy in the tax filing process, making it easier for the IRS to manage and track tax matters efficiently. Common types of TINs in the US include Social Security Numbers (SSNs) for individuals and Employer Identification Numbers (EINs) for businesses.

All registered businesses in the US are required to obtain an EIN for tax filing and reporting purposes. They should also ensure their employees have valid TINs, such as SSNs or ITINs before employment begins.

Below, we’ll cover the three main types of TIN (SSN, EIN, and ITIN) and how you can obtain one in the US. We’ll also discuss its importance for legal compliance, tax reporting, and business transactions.

In summary:

• What is a TIN? The IRS issues a unique nine-digit identification number (TIN) to individuals and businesses for tax purposes.

• Common TINs in the US include the Social Security Number (SSN) for individuals, Individual Taxpayer Identification Number (ITIN) for non-citizens without an SSN, and Employer Identification Number (EIN) for businesses.

• All registered businesses in the US are required to obtain an EIN from the IRS. Employers should also ensure their employees have a valid TIN (SSN or ITIN) before starting employment.

• All businesses in the US are automatically assigned an EIN when they register with the IRS.

What are the types of Tax Identification Numbers in the US?

In the US, there are three primary types of Tax Identification Numbers, each serving different categories of individuals and entities:

Social Security Number (SSN)

SSNs are often issued automatically at birth for US citizens and can be applied for by US residents through the Social Security Administration (SSA). This nine-digit number is used for many purposes, like filing taxes, applying for loans, opening bank accounts, and other government and financial transactions. It also serves as the individual's TIN for federal tax purposes.

Employer Identification Number (EIN)

The EIN is a unique number the IRS assigns to businesses, nonprofits, and other organizations for tax purposes. It’s required for businesses to file taxes, hire employees, open business bank accounts, and apply for business licenses.

Individual Taxpayer Identification Number (ITIN)

The IRS issues ITINs to individuals, including resident and non-resident aliens, their spouses, and dependents, who aren’t eligible for an SSN. The ITIN allows these individuals to meet US tax obligations, file tax returns, and open bank accounts.

Do I need a TIN for my business in the US?

Yes, if you’re starting a business in the US, you’ll need to apply for an EIN, which serves as your business’s TIN. This number is necessary for tax filing, opening a business bank account, and other business-related activities. Sole proprietors can sometimes use their SSN instead of an EIN, but they must obtain an EIN if they hire employees or file certain tax forms, such as excise taxes.

Do I need a TIN for my employees in the US?

Yes, employers must ensure that their employees have a valid TIN, such as an SSN or ITIN, before hiring them. This is crucial for tax reporting and payroll purposes. Employers must use the employee’s TIN when reporting wages and filing payroll taxes with the IRS.

How to get a TIN in the US

Obtaining a TIN is a straightforward process, but the steps vary depending on whether you need an SSN, EIN, or ITIN. Each type of TIN serves different individuals or entities, and understanding how to apply for the correct one is important for fulfilling tax obligations and conducting financial transactions. Here's the process for obtaining each type of TIN in the US:

• SSN: US citizens and permanent residents can apply for an SSN through the Social Security Administration (SSA). It’s often issued automatically at birth for U.S. citizens. To apply for an SSN for the first time, you can begin your application online, but you will need to visit a local Social Security office or card center to complete the application process.

• EIN: Businesses and other entities can apply for an EIN directly through the IRS website. The process is free and takes just a few minutes to complete online.

• ITIN: Non-resident aliens and others who aren’t eligible for an SSN can apply for an ITIN by submitting IRS Form W-7 with their tax return and proof of identity, either by mail, in person at an IRS office, or through a Certifying Acceptance Agent (CAA).

Once obtained, the TIN (whether SSN, ITIN, or EIN) generally remains valid indefinitely. However, ITINs may expire if not used for tax filings for three consecutive years and must be renewed if expired.

Are TINs expensive to get in the US?

No, obtaining a TIN in the US is free. US citizens receive their SSNs at no cost, and the IRS does not charge fees for assigning an EIN to businesses or an ITIN to individuals. While obtaining a TIN is free in the US, some businesses choose to hire third-party services for assistance with the application process, which may incur additional fees.

Why is it important to get a TIN?

Having a TIN is essential for individuals and businesses to fulfill their tax obligations and comply with US tax laws. Here are a few reasons why your business should obtain a TIN:

To maintain legal compliance

Having a TIN ensures that individuals and businesses comply with tax regulations. It enables accurate income and tax contributions reporting, helping avoid legal issues and penalties from the IRS.

To report taxes

A TIN is required for all tax-related matters, from filing personal income taxes to reporting business revenue and expenses. It serves as a unique identifier with the IRS and other government agencies.

To make business transactions in the US

A TIN is essential for opening business bank accounts, obtaining loans, and engaging in contracts. It streamlines interactions with financial institutions and government agencies, ensuring that transactions are properly recorded and verified.

How can Airwallex support your international business expansion?

If you're expanding your business internationally, having a TIN is necessary to open bank accounts and access financial services. Airwallex can help streamline your global financial operations with a business account, multi-currency payment solutions, and expense management tools. Once you have a TIN, you can open an Airwallex Business Account to start accepting payments and making cross-border transactions in multiple currencies, all while complying with local tax regulations.

Create your Airwallex Business Account today to simplify your international operations and manage your financial needs.

FAQ

Are Tax Identification Numbers essential for businesses in the United States?

Yes, TINs are necessary for businesses to comply with US tax laws. All businesses need an EIN as their TIN to file taxes and conduct transactions with federal and state governments.

Are there alternatives to Tax Identification Numbers in the United States?

No, TINs are the only acceptable identification numbers for tax purposes in the US. Individuals must provide either an SSN or ITIN, and businesses must use an EIN to fulfill their tax obligations.

Are Tax Identification Numbers expensive to get?

No, obtaining a TIN (whether SSN, ITIN, or EIN) is free in the US. Most individuals and businesses can apply directly through the IRS without any additional fees.