Invalid TINs

Whether the TIN used has invalid characters or is missing altogether, it can spell big trouble for small business owners. Getting the facts can help you keep your information correct and keep you from missing out on as much as 28 percent of your credit card sales. Far too often it is easier to ignore the things you’re not sure you understand. As a business owner, whether your business is small or large, you can’t afford to do that. This is especially true with the rules the IRS has put into place regarding invalid Taxpayer Identification Numbers (TINs). The IRS wants to make sure you’re not cheating Uncle Sam out of his share of your pie. To that end, it has put the responsibility of verifying your sales to make sure all reports are above board, which makes it even more critical to avoid unreliable credit card processors that could mishandle your payment data or reporting.

An INVALID status appears when the IRS database does not recognize the combination of your legal name and TIN, which can lead to issues with tax filings. If your TIN is invalid, you may receive IRS Notices such as CP2100 or CP2100A, and you will receive an email notification if your tax information fails IRS validation. An invalid TIN can also result in a regulatory non-compliance fee being charged to your account. If your Employer Identification Number (EIN) was issued within the last 14 days, the IRS may not have updated their validation system yet, which can cause a temporary invalid status.

**Why do Invalid TINs Matter?**To you as a merchant, it can be quite costly. The Housing and Recovery Act of 2008: Merchant Tax Reporting, specifically Section 6050W mandates that all payment settlement entities, like merchant service providers and banks, report the annual gross payment card transactions they process on behalf of merchants to the IRS via 1099-K form. The IRS will then use this information to verify and confirm financial data gathered from other resources.

When Taxpayer Identification Numbers do not match the legal business names or addresses the IRS has on file, it can be big trouble for you because the IRS has placed the responsibility of correcting the information so that it does match the IRS information (which is often done via IRS Form W-9) in your hands. If you are sent one of these forms from your merchant account provider, make sure you fill it out completely and return it promptly. You should enter your name exactly as it appears on your Social Security card or IRS confirmation letter, and you may need to provide a valid supporting document, such as a W-9 or SS-4, when updating your TIN. Why? Because if you fail to do so, the next action they are required to take is in the form of backup withholding. This process involves merchant services deducting 28 percent of your account deposits with them on behalf of Uncle Sam. Payers may be legally required to withhold 24% from future payments until the TIN is corrected, and failure to correct an invalid TIN can result in the IRS requiring backup withholding of 24–28%. Incorrect reporting can lead to penalties of up to $310 per return, and financial penalties for filing incorrect information returns can range from $60 to $340 per return. It works very much like income tax withholding that happens as your checks are earned rather than being paid in to the government at the end of the year. Here’s where it really stings. That’s just the federal government’s take. You could also be facing withholding requirements from your state in addition to the painful 28 percent. Some states charge as much as seven percent on top of the U.S. Government which would result in 35 percent of your gross sales tied up and unavailable to your business. Ouch! Don’t Get Mad at Your Merchant Processor!

It’s not your merchant processor’s fault. This is the cost they must pay for doing business and enabling your business to accept payments electronically. It is also something the government put into place to prevent fraud. Their hands are as tightly bound in this matter as that 28 percent of your sales, even as you still retain options for lowering your overall credit card processing fees.

How Can You Fix the Problem?

Prevention, with all things, is the best cure. The first thing you need to do, as a small business owner, is to ensure the accuracy and validity of your TIN. Then you need to make sure it is accurately reported on all your documentation, just as you should avoid costly payment-processing mistakes small business owners make that can quietly erode your profits. Typos, punctuation errors, and unregistered name changes can lead to an invalid TIN, and common issues include name changes not reported to the Social Security Administration. One out of place character, a wrong number, a symbol in an improper place, or a business name that doesn’t exactly match the name associated with the TIN on IRS documentation and you could have a problem.

If you are sent a W-9 form from your merchant services, fill it out thoughtfully and accurately. Do not delay unnecessarily or procrastinate as that inaction might be painfully costly for your business. The IRS doesn’t notify merchant service providers of the specific error, only that there is an error, or mismatch, in your TIN. It is up to you to make sure that it isn’t something as simple as a transposed number, left out symbol, or even the wrong suite number on the address. Any little inconsistency can be quite costly. It isn’t worth the risk. Very few businesses can easily bear the seizure of roughly 1/3 of your monthly sales through backup withholding. That is why it is so important for you to work with a merchant services provider you can trust to stay on top of things before it comes down to the requirement of backup withholding from the IRS and to help you follow best practices to avoid merchant account holds and freezes. By taking preventative steps now, you can avoid a painful lesson for your business down the road. Get to know the organization you’re working with and develop relationships so little issues like these do not become major trials and tribulations for your business, including unexpected chargebacks or disputes that could have been avoided by following tips to prevent chargebacks, holds, and freezes.

To resolve an INVALID TIN status, you should verify your legal name and TIN to ensure they match IRS records, and your TIN and legal name must match exactly with IRS records to avoid an INVALID status. Users must verify their legal name and TIN to resolve an INVALID tax ID status, and validation is required for a valid TIN. If your TIN is invalid, you may need to change your information in the system or portal and provide the necessary document to ensure your TIN is valid. Tax identification numbers must be updated through the appropriate channels or system to ensure accuracy in filings, and using TIN validation software can simplify the tax form filing process for organizations. TIN validation software and services help ensure that taxpayer identification numbers match IRS records and can prevent delays in registration processes. If you run into any issues, you should review the combination of your legal name and TIN and ensure all information is entered correctly. If your TIN is invalid, you may need to contact your administrator or the IRS for assistance in correcting it, and you can obtain an IRS Form 147C directly from the IRS to verify your TIN.

Taxpayer Identification

Taxpayer identification is a fundamental part of keeping your business or personal tax records in good standing with the IRS. Every taxpayer—whether an individual, sole proprietor, or business entity—must have a taxpayer identification number (TIN), sometimes referred to as a tax identification number. This unique number, assigned by the IRS, is used to track your tax obligations and ensure your filings are processed correctly, especially when you rely on secure online payment gateways for transaction processing.

For individuals and sole proprietors, the TIN is usually your social security number (SSN), while businesses are assigned an employer identification number (EIN). It’s crucial that the legal name and business name you use on tax documents exactly match what the IRS has in its database. Even a small typo, an incorrect number, or a mismatch between your business name and your TIN can result in an invalid TIN, leading to issues like backup withholding, delays in processing, or even penalties, just as misunderstanding debit vs. credit card transaction fees can create unexpected costs for your business.

To avoid these problems, always double check your taxpayer identification information before submitting any forms or documents and review the true cost of your card processing just as carefully, much like conducting the kind of scrutiny you’d expect from a Shark Tank-style review of your card processor. Here are some steps you can take to ensure your TIN and related information are accurate and up-to-date:

• Verify your TIN and legal name with the IRS: Use the IRS database or contact the IRS directly to confirm that your information matches their records.

• Double check for typos or errors: Carefully review your social security number, EIN, and legal name for any mistakes before filing.

• Update your records as needed: If your name changes or your business information is updated, make sure to update your records with the IRS and obtain a new social security card or EIN assignment letter if necessary.

• Keep accurate documentation: Maintain copies of your social security card, EIN assignment letter, and any correspondence with the IRS for your records.

• Contact the IRS for additional help: If you discover an incorrect TIN or receive a notice about a mismatch, reach out to the IRS for guidance on how to correct the issue.

For example, if you recently changed your name due to marriage or updated your business name, it’s important to update your social security card and notify the IRS to ensure your records match. Failing to do so can result in your TIN being flagged as invalid, which may delay your tax filings or trigger backup withholding.

Note: The IRS takes taxpayer identification very seriously. Any errors or mismatches in your TIN or legal name can cause significant delays or even penalties. Prioritizing accuracy and regularly reviewing your information can help you avoid unnecessary issues and keep your tax process running smoothly.

By following these steps and ensuring your taxpayer identification number and related information are always accurate, you can avoid the headaches of invalid TINs and keep your business or personal tax filings on track. If you ever need additional help, don’t hesitate to contact the IRS or consult a tax professional for guidance.