TIN Matching: Common Pitfalls to Avoid
When it comes to TIN matching, the name says it all. It’s when businesses match a payee’s tax identification number (TIN) against Internal Revenue Service (IRS) records. Simple, right? However, companies can encounter errors during the TIN matching process that could put the accounts payable process at risk of noncompliance with tax regulations.
First off, let’s understand what is a TIN. A nine-digit number assigned to individuals or companies by the IRS for tax purposes. There are five types of TINs: an Employee Identification Number (EIN), social security numbers, Individual Taxpayer Identification Numbers (ITINs), Tax Identification Numbers For Pending U.S. Adoptions (ATINs), and Preparer Taxpayer Identification Numbers (PTINs).
Businesses are required to apply for an EIN for tax purposes. For individuals operating as a sole proprietor, a social security number, which is assigned by the Social Security Administration, is acceptable to use as a TIN. Using the social security number as a TIN is standard practice for freelancers.
Payers are required by the IRS to annually file a 1099 tax form for each payee; the form reports the annual income and tax withheld. TIN matching verifies that the tax identification of a business or individual matches the IRS database. Accounts Payable usually obtains the TIN of a business or individual during the onboarding process by requiring a W-9, a tax form for the Request for Taxpayer Identification Number and Certification.
The concept of TIN matching sounds straightforward, but your accounts payable needs to have protocols for handling common problems that come up in the TIN matching process. Otherwise, mishandling the issues will but your company at risk for tax noncompliance or fines.
Stay informed of IRS e-services updates
TIN Matching is a free service offered by the IRS through its e-services tool on the IRS website. After registering on the site, payers can enter up to 25 names and their TINs to get an immediate verification response or up to 100,000 names and their TINs to get a verification within 24 hours. In fall 2017, IRS made updates to its e-services tools, which required existing users to re-register to maintain access. Accounts payable conducting TIN Matching through IRS e-services will have to stay informed of e-service interruptions and have protocols when there’s a delay in verifying TINs.
However, accounts payable can avoid TIN verification delays due to IRS e-service updates by integrating IRS e-services tools directly into an AP platform. TIN matching API integrates IRS e-services into the platform, making TIN matching a seamless step in the accounts payable onboarding process.
Document attempts for correcting invalid TINs
Vendor self-service reduces errors that occur in manual data transfer, but sometimes TIN matching errors still happen. When the corporation or an individual’s name and their TIN is not verifiable with the TIN matching database, the IRS has a specific procedure for obtaining the correct TIN: companies must send a B-Notice (an official notice created by the IRS) and a W-9 form to the payee. If a corrected W-9 is not received in 30 business days, companies must begin backup withholding, which is 28 percent of income withheld for taxes. Accounts payable must follow the procedures established by the IRS and document the attempts made to correct an unverifiable name and its corresponding TIN.
Automation can help accounts payable can seamlessly follow-up on unverifiable names and TINs without delaying the workflow for other vendor payments. When a TIN matching error occurs, the notification triggers an automated email that notifies the payers to verify its name and TIN. The email should include helpful tips for payees. For example, a typical reason behind unverifiable TINs for companies or organizations is that the TIN should be an EIN, not the owner’s social security number. Instead of accounts payable manually following up and entering the correct information, a self-service portal enables payees to fix the error.
When it comes to TIN matching, your accounts payable should stay informed of TIN matching e-service updates and document attempts for correcting invalid TINs. These common issues can be avoided with protocols that make it seamless for AP to communicate with payees. Automation can handle many of the tasks that require follow-up, which will help accounts payable move forward with the onboarding process without interruptions.