Taxpayer identification numbers are assigned to businesses and individuals to identify the entities and individuals with unique qualifiers. Federal authorities, such as the IRS use TINs to identify and track the tax compliance history of entities and individuals. Hence, the IRS rejects returns that report incorrect TINs citing noncompliance.
Typically, businesses follow a standard TIN Match procedure at the end of the year with a near-ending deadline. They send a W-9 form to the vendor and most likely the vendor does not respond to the communications until the day before the deadline or provides incorrect information in a hurry.
At this point, the accounting teams do not have the time to individually verify the TINs provided to them by the vendors. Businesses with large vendor lists have to put in double the effort to get the information during the year-end rush.
The accounting teams then furnish the information in the returns and file them, planning to deal with any rejections or citations later. It’s not that the teams are unaware of the repercussions.
Most teams are aware of the consequences of reporting incorrect TINs or omitting to report TINs. But given the timelines in which they have to deliver, they are not left with much of a choice. Besides, delayed filings can invite penalty assessments and B-notices from the IRS.
However, a simple solution like real-time TIN matching can help accelerate the vendor onboarding and tax information validation process, which further helps ensure regulatory reporting and tax compliance.
But to get to that, we need to understand the mechanism in which a taxpayer identification number works.
TIN Matching & TIN Validation
A taxpayer identification number, or employer identification number, or social security number is a unique number used to identify an entity or an individual.
TIN and the name of the business or individual to whom the TIN belongs must match the IRS records. That is the only way to check if the vendor you want to work with has a compliant tax history.
Further, a TIN match also helps you understand if the vendor is in good standing with the IRS. When vendors provide wrongful TIN/name information, they are most likely trying to hide their incomes from the IRS or have a history of noncompliance.
Significance of TINs in 1099 Reporting
When you make non-employee compensations amounting to $600 or more in a year to your vendors and freelancers, the amount paid for their services must be reported on 1099-NEC along with the TIN/name combination of the vendor.
Freelancers that prioritize tax compliance readily provide the necessary tax information during the W-9 solicitation process.
Your accounting teams have to provide both your business TIN and the vendor TIN to help the IRS validate the transactions. These TINs are used by the IRS to check if both the parties have reported these transactions for the same amounts, for the same purposes, using the same TINs.
When either of the parties fails to report the correct TINs, tracking the transactions can become a complex task for the IRS, which leads them to send out B-notices for TIN discrepancies.
Optimizing Your Vendor Onboarding Process
As soon as you work out the commercials with your vendors, ask them to provide the tax information, such as their TIN/EIN/SSN and name.
Most vendors and freelancers will not have a problem with this step and would comply with the process.
You can use the TIN and name information provided to search the IRS database and verify if their TINs match the IRS records.
This allows you to verify the vendor per the IRS records and check their tax compliance status before you even add them to your vendor lists.
Upgrade To Real-Time TIN Match API From Compliancely
Compliancely is an authorized regulatory compliance enabler trusted 100,000+ businesses. Trusted by entities from health care, banking, finance, education, gig economy, government, retail, e-commerce, and other industries, Compliancely is helping businesses comply with federal authorities and validate incoming partners, recruits, vendors, and entities.
With an automated real-time TIN Match infrastructure like Compliancely, it is very easy to optimize your vendor onboarding process, validate the tax information, and comply.
Our automated TIN Matching API allows you to verify all your vendors and freelancers before you add them to your vendor lists.
You can check as many as 100,000+ TINs every day, saving you time and effort.