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

As a best practice, accounting professionals (typically Accounts Payable) should obtain the TIN/EIN of a business or individual during the vendor onboarding process. This should be done by requesting a W-9, which is a tax form for the Request for Taxpayer Identification Number and Certification. A completed W-9 should be returned from your vendor before issuing any payments.

The importance of TIN matching
The most common cause of reporting errors is a mismatch between a recipient name and TIN. 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 TIN/name combination on your information returns is to validate this information via TIN matching. After validation, if you discover the information provided on the vendor’s W-9 is incorrect, you can request the vendor provide the correct TIN and legal name until they furnish the correct information.

To ensure compliance, it is recommended that you complete this TIN Matching process when onboarding each new employee, customer or vendor throughout the year. With the added step of possibly completing a Bulk TIN Match of all records in the Fall to capture any additional potential mismatches from information that has changed. This will save you the hassle of requesting new (or updated) W-9 information from your vendors during tax season and decrease the likelihood of penalties from the IRS.

Common TIN errors to watch for
Mismatched TINs can happen for a variety of reasons including typos, transposed numbers and unreported name changes due to marriage or divorce. Errors can also come from W-9s being submitted with an SSN and business name (DBA) rather than the person’s name if working with a sole proprietorship. The bigger concern, however, is missing, incomplete or outright false SSNs. In the case of false SSNs, utilizing a TIN matching service that also provides a check against the Death Master File (DMF) to verify that a TIN is not associated with a deceased individual is also a good practice to help protect your organization from a common source of fraud. There are many ways that your payee tax records can have incorrect information, so it’s vitally important to proactively manage your employee, customer and contractor data before filing your tax forms.

The cost of noncompliance
When filing your W-2s or 1099s, your recipient TIN and name must be an exact match against the IRS/SSA database. If it does not match the IRS database, your organization may receive an IRS Notice CP2100, also known as a “B Notice”, and eventually a penalty notice. The typical penalty for an incorrect TIN/name combination is $290 per record, so it’s a benefit to have the correct information the first time you file to avoid the time-consuming process of managing rework, corrections and of course the potential for hefty fines.

It all starts with a plan
Tax information reporting is a year-round activity. If you wait until the reporting deadline to gather the correct information and documentation for your vendors and payees, it is too late. Understanding the process and implications of TIN Matching can be critical in your ability to file accurate returns and avoid penalties.