Taxpayer identification number: Overview, definition, and example
What is a taxpayer identification number?
A Taxpayer identification number (TIN) is a unique number assigned by a government agency to individuals and businesses for tax purposes. In the U.S., the Internal Revenue Service (IRS) issues TINs to track tax obligations and payments. Common types of TINs include Social Security Numbers (SSNs) for individuals and Employer Identification Numbers (EINs) for businesses.
A TIN is required for filing tax returns, opening business bank accounts, and handling other financial or legal matters. Without one, individuals and companies may face delays or penalties when dealing with tax authorities.
Why is a taxpayer identification number important?
A TIN is essential for tax compliance—governments use it to track income, tax filings, and payments. Without a valid TIN, businesses may be unable to legally operate, and individuals might have trouble filing taxes or receiving government benefits.
For businesses, a TIN is also needed when hiring employees, applying for loans, or working with contractors. Many financial institutions require a TIN to verify identity before opening accounts or processing transactions.
Understanding taxpayer identification number through an example
Imagine Sarah wants to start a small business. To open a business bank account and file taxes separately from her personal finances, she needs an Employer Identification Number (EIN). She applies for one through the IRS, and once approved, she can use it to report taxes, hire employees, and conduct business legally.
In another example, David is a freelancer. Since he doesn’t have employees, he doesn’t need an EIN, but he must use his Social Security Number (SSN) as his TIN when filing tax returns and submitting tax forms to clients. If David were a non-U.S. resident, he might need an Individual Taxpayer Identification Number (ITIN) instead.
Example of a taxpayer identification number clause
Here’s how a contract might refer to a TIN:
"Each Party shall provide its valid Taxpayer Identification Number (TIN) as required for tax reporting and compliance with applicable laws."
Conclusion
A Taxpayer Identification Number (TIN) is a necessary tool for tax reporting, legal compliance, and financial transactions. Whether for individuals or businesses, having the right TIN ensures smooth tax filings and prevents legal or financial complications.
For SMBs, obtaining and using a TIN correctly is a key step in maintaining compliance and building a financially stable business.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.