What is a Tax Identification Number (TIN) and Why is it Important?

Kelly Conner
February 27, 2023

Having the correct Tax Identification Number (TIN) is essential when filing W-2s, 1099s and ACA forms. The nine-digit number could be a Social Security Number (SSN), Employee Identification Number (EIN), Individual Taxpayer Identification Number (ITIN) or an Adoption Taxpayer Identification Number (ATIN).  A valid Social Security Number may only be obtained through the Social Security Administration, while the IRS issues EIN, ITIN and ATINs.

Accounting professionals (typically Accounts Payable) should obtain the TIN/EIN of a business or individual during the vendor onboarding process by requiring a W-9, a tax form for the Request for Taxpayer Identification Number and Certification, before issuing payments.

Common TIN errors to watch for

Mismatched TINs can happen for a variety of reasons – from typos and transposed numbers to unreported name changes due to marriage or divorce. The bigger concern, however, is missing, incomplete or outright false SSNs.

The Social Security Administration keeps a watchful eye on mismatched TINs and shares their findings with other government agencies. To prevent future headaches, it’s vital to carefully
check employee, customer and contractor data when filing tax forms.

The importance of TIN matching

The most common cause of reporting errors is mismatches between recipient names with Tax Identification Numbers, also known as TIN matching. Errors can lead to incorrect filing penalties and trigger withholding obligations for your organization. The IRS penalties can be hefty, at $290 per form, with a cap around $3.5 million for large businesses.

The best way to ensure that you report the correct TINs in your information returns is to validate the TINs as you receive them from the vendor/payee through Form W-9. If, after validation, you discover that the provided information is incorrect, you can request the vendor to provide the correct TIN and legal name until they furnish the right information.
To ensure compliance, we recommend that you go through this process when onboarding each new employee, customer or vendor throughout the year.

The cost of noncompliance

When filing your W-2s or 1099s, your recipient TIN and name must be complete and match what the IRS/SSA has on file.  If it doesn’t, your organization may receive an IRS Notice CP2100, also known as a “B Notice”, and eventually a penalty notice. The typical penalty for incorrect TINs is $290 per record, so it’s critical that you get this right to avoid these hefty fines.

It all starts with a plan

Tax information reporting is a year-round activity and obligation, so waiting until the reporting deadline to ensure you have the correct information and documentation will not work in your favor.

Tax rules can change from year to year, so make sure you understand the latest requirements.
The first step is to understand the implications of name and TIN matching and how this impacts your ability to file accurate returns. Familiarize yourself with the services available to help you and know how to avoid the costly penalties associated with filing incorrect returns.

Take Action

Learn how to properly manage tax identification information for your employees, customers and contractors by reading our Tax Identity Management 101 eBook.

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Kelly Conner

Kelly Conner is the Director, Product Marketing for Tax & Regulatory Reporting at Sovos. She has been with Sovos for 8 years and is responsible for directing a team that establishes the marketing strategy and direction for Sovos’ 1099, Affordable Care Act, Unclaimed Property, and Statutory Reporting solutions based on industry and client needs. Previously at Sovos, Kelly served as a customer service representative, where she serviced Sovos’ largest customers with unique tax reporting requirements. Kelly holds degrees in Marketing and Communication Studies from the University of Wisconsin-La Crosse.
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