As tax season rolls around, that nagging doubt about filing correctly resurfaces. The threat of audits makes those ubiquitous H&R Block offices look almost inviting. But calm your fears – taxes aren’t nearly as complicated as those devious CPAs would have us believe. Save yourself some anxiety and some cash and learn the fundamentals yourself. Beginning with the most basic element of taxes: the taxpayer identification number.
What is a taxpayer identification number (TIN)?
Also simply called the Tax Identification Number, a TIN is a 9 digit number used to track taxpayers – both individuals and companies. They are issued by the Internal Revenue Service (the IRS), or in the case of Social Security Numbers, by the Social Security Administration (SSA).
When are TINs used?
TINs are primarily used on the many varieties of tax forms, but they occasionally serve as IDs elsewhere too. It’s important to know your TIN, know which type(s) you need, and where to use them.
TINs are used when:
- Filing tax forms, both personal and business
- For foreign businesses claiming international trade treaty benefits
- Occasionally for official identification
Types of taxpayer identification numbers
There are five types of TINS, although you are only likely to ever encounter two of them.
Social Security Number (SSN)
The only TIN that isn’t handed out by the IRS, if only because it’s such a gargantuan task that it has its own government agency to handle it. Furthermore, it’s the most common type of TIN.
SSNs always have the format XXX-XX-XXXX. They are often used as a primary source of ID in the US since we lack a standard-issue government license (other than a driver’s license).
Although not required, new parents are encouraged to complete the application as soon as possible after the birth of their newborn. Most don’t need prompting since children can’t be claimed as dependents on a tax return until they have an SSN, and dependents represent a large deduction.
How to apply for an SSN?
- Very rarely do adult US citizens have a need to apply for an SSN, and in the case of newborns, the information is usually given to parents by the hospital.
- The necessary application is called a Form SS-5 and it can be applied for online or in person at a Social Security Administration office. It will require evidence of identity, age, and citizenship.
- SSNs are free to apply for, although services exist to undertake the process for you.
Employer Identification Number (EIN)
An EIN is a TIN that is given to corporations, trusts, and fiduciaries in order to be identified as a legitimate entity and for tracking tax reporting.
EINs always have the format XX-XXXXXXX. The numbers indicate which state the business was incorporated in and are both unique and never recycled, even in the event that the business dissolves. They do not expire, although companies that reincorporate may need to apply for a new one.
Despite the name, an entity doesn’t need to have any employees to require an EIN. They are distributed to every kind of business, including sole proprietorships, partnerships, LLCs, S and C Corps, nonprofits and more. They are a critical prerequisite for starting a business and business banking accounts will all require an EIN.
Note that sole proprietorships may not need an EIN, they can use their SSN to report taxes. Also important is that EINs are public information, unlike SSNs, and do not need to be protected or obscured.
Check out our guide to the LLC Taxes and LLC Tax Returns
How to apply for an EIN?
- EINs are distributed by the IRS and can be obtained through their website. Applying online is quick and painless and the EIN is made available immediately if the application is in order.
- The application for an EIN is free. Depending on your state, however, there may be additional forms or IDs to submit. Check the requirements on the IRS website.
- Business owners in Puerto Rico have a unique form – Solicitud de Número de Identificación Patronal.
Individual taxpayer identification number (ITIN)
ITINs are fairly uncommon – they are only distributed to certain non-citizens and resident aliens, as well as their spouses and children. It is sometimes temporary, but the IRS requires one for tax processing purposes.
An ITIN is formatted just like an SSN (XXX-XX-XXXX) with one important distinction – it always begins with the number 9.
Individuals with an ITIN are not able to claim earned income credit. They are encouraged to apply for an SSN if they are eligible.
How to apply for an ITIN?
Getting an ITIN is a difficult process but there are several processes to make it easier.
- The first step is to complete Form W-7, the IRS Application for Individual Taxpayer Identification Number. It necessitates that you submit evidence of foreign status, either through the mail or walking into an IRS office.
- Unfortunately, there is no option to apply for an ITIN online. There are, however, Acceptance Agents scattered around the country. These are institutions authorized by the IRS to facilitate ITIN applications. They will help complete the paperwork then forward it to the IRS on the behalf of the applicant.
- There is no fee for an ITIN. Common Acceptance Agents are universities, accounting firms, and various financial institutions.
Preparer tax identification number (PTIN)
PTINs are an oddity because they are a relatively recent change to tax procedures. As of 2011, PTINs are mandatory rather than optional.
If you don’t already know what a PTIN is, it’s unlikely you’ll need one. They are used solely by “paid tax preparers”, ie those guys at H&R Block. Emphasis on the “paid” part of the tax preparer – those kind, elderly people that volunteer to help with taxes at libraries and such during tax season don’t need a PTIN.
The purpose of the PTIN is to track those who are filing taxes on behalf of others – and assuming some of the liability in the process. Interestingly, there used to be a fee to apply for a PTIN, but it was deemed unconstitutional in 2017 and the IRS had to refund a couple hundred million dollars to paid tax preparers around the country.
Another unique aspect of the PTIN is that it has to be renewed annually. It is the only TIN that ever needs renewal.
How to apply for a PTIN?
- The IRS has a separate system for applying for PTINs. It’s a streamlined application process to get you the necessary credentials to be a paid tax preparer and can be completed in about 15 minutes.
- If, for some reason, convenience isn’t your thing you can fill out a paper application (Form W-12, IRS Paid Preparer Tax Identification Number Application) and mail it in. It takes up to 2 months to be processed.
- Renewals are also handled through the same two channels.
Adoption taxpayer identification number (ATIN)
Easily the rarest of all the types of TIN, the ATIN is used in one specific scenario:
When a US citizen is in the process of domestic adoption and the child hasn’t been assigned an SSN yet (or it hasn’t been discovered), but the adopter is far enough along in the process to be eligible to claim the child as a dependent on a tax return.
Yes, the ATIN is a pretty niche TIN. It’s temporary, obviously, and the child has to be restored to a proper SSN as quickly a possible. As such, it’s valid for a maximum of 2 years.
It can also be used in the case of foreign adoption, but only if the child already has citizenship or a permanent resident alien card.
How to apply for an ATIN?
- The form used is the W-7a. It requires the applicant to supply the adoptees personal information, and notably, information regarding the placement agency (adoption agency or orphanage). It will also require cooperation from them in the form of a representative’s signature. Depending on how far along in the process the adoption is, you may be required to present placement papers (also known as surrender papers).
- There is no online application, the form has to be mailed to the IRS. Alternatively, the applicant may choose to go to a walk-in IRS office for help filing and submitting. It usually takes 4-8 weeks to process the ATIN application.
- Like other TINs, the ATIN is free to apply for.