If you earn income or run a business, chances are you’ll need a Tax ID Number. But what exactly is it, and how does it work? You might use it to file taxes or claim credits. So, understanding your Tax ID is essential. Here are 10 must-know facts that will help you use it correctly, starting today.
You Don’t Need A Social Security Number To Get A Tax ID
No Social Security Number? No problem. The IRS issues ITINs—Individual Taxpayer Identification Numbers—to those who don’t qualify for SSNs, like non-resident aliens and foreign investors. They’re also used to claim dependents living overseas.
Every Business Must Have A Unique Tax ID
Businesses are expected to get an Employer Identification Number (EIN), which works as a Federal Tax ID. It’s required for filing taxes and opening a business bank account. Even solo owners may need one. The EIN application is also available online and can be approved quickly.
Tax IDs Can Expire If Not Used
An EIN can be deactivated after long periods of inactivity. ITINs expire if not used on a tax return for three years. In fact, in 2020, millions of ITINs expired. The IRS also sends renewal notices, but many people miss out on refunds because they forget.
You Can’t File Taxes Without One
A valid Tax ID is required to file a federal tax return. Individuals and businesses must report income using it. The IRS rejects returns with missing or incorrect numbers, with some states requiring a separate Tax ID for local tax reporting.
Tax IDs Aren’t Just For Citizens
ITINs are issued to non-citizens with U.S. tax obligations. Even undocumented immigrants can file taxes legally. Over 5.8 million people used ITINs in 2022. Filing taxes with an ITIN can also help prove U.S. residency for future legal immigration status.
Married Couples Might Need Two
Couples filing jointly need valid Tax IDs for both spouses. If one spouse doesn’t have an SSN, they must apply for an ITIN. The IRS accepts joint filings from mixed-status couples. Many discover this requirement only when filing together for the first time.
A Tax ID Can Unlock Tax Credits
To qualify for certain credits, like the Child Tax Credit, a valid Tax ID is required. The IRS checks IDs before approving benefits. Missing or invalid numbers can result in refunds being denied, while filing with the correct ID may lead to hundreds or thousands of credits.
You Can’t Hire Employees Without It
Employers must have an EIN to legally hire and pay workers. It’s used for reporting wages and filing payroll taxes. Hiring without an EIN can result in IRS penalties. Even household employers, like those hiring a nanny, may be legally required to get one.
Changing Your Business Needs Your Tax ID
Major changes like ownership transfers, company structure shifts, or mergers may require a new EIN. Some businesses go through multiple EINs over time. The IRS provides a tool to check if a new EIN is necessary when significant business changes occur.
Getting A Tax ID Is Free And Easy
The IRS does not charge for issuing EINs or ITINs. You can apply online, by mail, and by fax. Some services charge for this free process. Many people receive their Tax ID in under 15 minutes using the IRS’s official application tool.
