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What is a Taxpayer Identification Number (TIN) check?
The best way to avoid issues later on is to do a Taxpayer Identification Verification Match right after onboarding process and get a W-9 form completed by the independent contractor.
A Taxpayer Identification Number (TIN) check is a service offered by the Internal Revenue Service (IRS). This service allows us to verify the TIN provided by the payee against the Name/TIN that is in the IRS database. Doing this before filing prevents errors such as; fake TIN numbers, transposed digits, or name mismatches that can potentially cost you a lot of money in penalties. We can look up for any type of entity including; Sole Proprietors, Partnerships, Limited Liability Companies, Corporations (C & S), and Trusts/Estates.
The verification does not provide much information other than if it is a match or not. Not matching implies that there is not a Name/TIN combination of the independent contractor/entity within the IRS’s database. For example, a search in the IRS database for an independent contractor named: John Smith using his SSN of 123-456-789 Will produce a result of Match or No Match. In sum, TIN Matching enables users to see if the information provided is accurate and help prevent future blowups with the IRS.
What happens if get incomplete or bad information for the form W-9?
Many times, you’ll find that independent contractors provide wrong information whether on purpose or by accident, there are unintended consequences. Being that there are to be 87,000 new IRS agents hired to audit and review tax documents, we better watch our backs.
The IRS typically sends a notice requesting corrected information and/or to deduct mandatory tax and send it to the IRS. Chances are once you notify the contractor of this; they’ll get up and quit, however penalties are steep, IRS TIN/Name mismatch penalties are currently $280 per mismatch, $3,392,000 maximum.