In this article, you will learn:
One of the questions that Shopify merchants have while launching their Shopify business is that do they need a Tax ID to sell on Shopify.
Well, Shopify business owners are required to pay taxes on the products or services they sell through their Shopify store.
As a result, they need to have a Tax Identification Number (TIN) so that they can provide their tax ID numbers on all tax returns and other documents they send to the IRS and the respective state tax departments.
Note that in the US, there are different types of Tax Identification Numbers that business owners may have to apply for depending upon the structure of their business, whether they hire employees and various other factors.
In this article, we will explain in detail what is tax ID, who needs to apply for a tax ID, and do you need a tax ID to sell on Shopify. Further, we will also provide you with the guidelines on how you can get a Tax ID if you are required to apply for one.
What is Tax Identification Number (TIN)?
To file tax returns and pay taxes at the federal and state level, business owners are required to obtain Federal Tax ID and State Tax ID numbers.
To administer the federal tax laws in the US, the Internal Revenue Service (IRS) uses a 9-digit identification number to identify taxpayers who are required to file various business tax returns. This number is the Taxpayer Identification Number (TIN). Thus, any individual or business dealing with the IRS must have a Tax Identification Number.
Besides needing a TIN to file tax returns with the IRS, a business may also need a TIN number for hiring employees, opening bank accounts, applying for permits and licenses, acquiring trademarks and copyrights, and various other purposes.
Now, there are different types of tax identification numbers that the IRS and the Social Security Administration (SSA) may issue to individuals and businesses.
These include Social Security Number (SSN), Employer Identification Number (EIN), and Individual Taxpayer Identification Number (ITIN). EIN and ITIN are the tax ID numbers that are issued to businesses and individuals respectively by the IRS. Whereas, the SSN is issued by the Social Security Administration (SSA) to the sole proprietors.
On the other hand, to administer state taxes in the US, each state issues a State Identification Number to businesses that are required to file state tax returns and pay sales tax within a state(s).
At times, businesses may require state tax ID numbers for other purposes like protection against identity theft for sole proprietors. To know whether a business needs a state tax ID, business owners need to check the rules and regulations of the respective state where they are required to file tax returns and pay taxes.
So, on the whole, your Shopify business may require a state tax ID and a federal tax ID depending upon factors like the type of business structure you have, your business location, whether you are going to hire employees, and whether you are required to file tax returns.
Let’s first understand what are the different types of tax ID numbers and what tx ID you should apply for as a Shopify business owner.
Types of Tax Identification Numbers
As mentioned earlier, there are five types of U.S. taxpayer identification numbers. These include a Social Security Number (SSN), Employer Identification Number (EIN), Individual Taxpayer Identification Number (ITIN), Taxpayer Identification Number for Pending U.S. Adoption (ATIN), and Preparer Taxpayer Identification Number (PTIN). Let’s understand each of these.
1. Social Security Number (SSN)
SSN is a type of taxpayer identification number that the Social Security Administration (SSA) issues to individuals who are employed in the U.S. to file an income tax return. That is, individuals who are employed and receive wages in the US must have an SSN. This number acts as an identity number of US citizens and other residents and is used for tracking their income, benefits, and tax purposes.
Put simply, every employer in the US who sets up payroll and pays wages to employees must request SSNs from their employees and report their wages using the SSN number.
Individuals can also use the SSN to open interest-bearing bank accounts with certain banks and conduct business in the U.S. They can also use SSN for other purposes like applying for loans, enrolling in Medicare, etc.
Initially, government agencies used SSNs to keep track of the earnings history of U.S. workers for Social Security entitlement and benefit computation purposes. However, over time, they started using SSNs to identify individuals. Besides this, even the private industry started using SSNs to track an individual’s financial history.
Thus, if you are running your Shopify business as a sole proprietor, you need to use SSN instead of an EIN to file and pay taxes. Only in certain circumstances, wherein you hire employees, would you have to use EIN or apply for one in case you don’t have one.
To apply for an SSN Number, you must complete Form SS-5 and provide at least two documents to prove your age, identity, and US citizenship or work-authorized immigration status.
2. Employer Identification Number (EIN)
EIN is also known as Federal Tax Identification Number. It is used by the IRS to identify a business entity, that is, the tax accounts of employers and certain others who have no employees.
EIN is a 9-digit number issued by the IRS to businesses and non-profit organizations. The IRS uses EIN to identify taxpayers who are required to file various business tax returns. The entities that use EIN include employers, sole proprietors, corporations, partnerships, non-profit associations, trusts, estates of decedents, government agencies, certain individuals, and other business entities.
Thus, all the above-mentioned entities must use their EIN on all of the documents they send to the IRS and SSA. Also, every tax-filing entity must have only one EIN for the same business entity.
Further, a tax-filing entity must use EIN in connection with their business activities only. They should not use their EIN in place of their Social Security Number (SSN) as SSN is issued by SSA to individual taxpayers in the US.
3. Individual Tax Identification Number (ITIN)
ITIN is a tax processing number that IRS issues to individuals who do not have and are not eligible to obtain an SSN number from Social Security Administration (SSA), but are required to have a U.S. taxpayer ID number. It is a 9-digit number that starts with the number “9” and is in the NNN-NN-NNNN format.
This taxpayer ID number helps individuals to comply with U.S. tax laws. Further, it also helps IRS to process and account for tax returns and payments efficiently for those individuals who are not eligible for SSN numbers.
ITINs are issued irrespective of the immigration status of individuals. That’s because the Internal Revenue Code requires both the residents and non-resident aliens to file or report to the IRS. Remember, ITINs are issued by the IRS only for federal tax reporting purposes.
Those who require ITIN must complete Form W-7. Form W-7 is the Application for Individual Taxpayer Identification Number that is issued by the IRS to eligible individuals. This form requires documents proving an individual’s foreign or alien status and true identity.
4. Adoption Taxpayer Identification Number (ATIN)
ATIN is a temporary 9-digit number that the IRS issues to individuals who are in the process of legally adopting a U.S. citizen or resident child but they cannot get an SSN in time for the child they intend to adopt to file their tax return.
Note that the taxpayers who intend to adopt the child must use the ATIN on their federal income tax return. The ATIN will help the tax authorities to identify the child while the final domestic adoption is still pending.
Now, as per tax regulations, taxpayers need to provide a valid identifying number for a person whom they are listing on their federal income tax return. However, the taxpayers who are in the process of adopting the child may not have an SSN for the child whom they have claimed as their dependent or are eligible to claim child care credit.
Thus, the taxpayers eligible to claim the child as their dependent and not having the child’s SSN may need an ATIN. Such taxpayers may require ATIN to claim the child as a dependent and to claim the child care credit.
Accordingly, the taxpayers who meet the requirements to apply for an ATIN may obtain ATIN through Form W-7A which is the Application for Taxpayer Identification Number for Pending Adoptions.
5. Preparer Tax Identification Number (PTIN)
PTIN is a tax identification number that all the enrolled agents and the individuals who prepare tax returns and are compensated for preparing U.S. federal tax returns or other tax forms submitted to the IRS must obtain.
Note that an enrolled agent is an individual who has either passed a three-part comprehensive IRS test covering individual and business tax returns or through experience as a former IRS employee. Further, such an individual has who has the honor of representing taxpayers before the Internal Revenue Service (IRS).
The enrolled agents and tax return preparers can apply for PTIN online on the IRS website. In case they do not want to apply for PTIN online, they can use Form W-12 which is the Paid Preparer Tax Identification Number Application. The paper application may take 4-6 weeks to process.
Do You Need A Tax ID To Sell On Shopify?
If you are launching a Shopify store, you may not require a tax ID while setting up your store. Provided you are launching the store as a sole proprietor. However, over the long term, when you start making sales and satisfy the economic nexus requirements of the states where you sell your products or services, you may require a tax ID to file tax returns.
Further, you may also require a tax ID when you plan to hire employees for your Shopify store or to switch from a sole proprietorship to other business structures like a partnership, an LLC, or a Corporation.
Now the type of tax identification number you require for your Shopify store will depend upon factors like the type of business structure you have, the state or the location where you sell your products or services, or whether you hire employees for your Shopify store.
For instance, if you run your Shopify store as a sole proprietor, you may require an SSN in place of an EIN number. Whereas, if you run your Shopify store as a partnership, an LLC, or a corporation, you may require an EIN number to file tax returns with the IRS.
Further, if you want to open a bank account, apply for business licenses or permits, apply for loans, or hire employees, you may require an EIN for your Shopify business.
Likewise, if you meet the economic nexus requirements for the state or states where you sell your products or services, you may require the respective state Tax ID for filing and paying sales tax returns. You may also require a state tax ID for hiring employees and for applying sales tax permits for tax-exemption status.
Note that the State tax ID numbers are only used for meeting the aforementioned purposes within the specific state only. For purposes outside that state or in a different state, you may require a new state tax ID for the state where you intend to locate. Note that if you intend to deal with government agencies at a federal level, you may require EIN.
How to Get a Tax ID Number?
Now as you are clear with what type of tax ID you need to apply for as a Shopify business owner, in this section we are going to explain to you in detail how you can apply for a tax ID number.
How to Get an SSN Number?
To apply for an SSN Number, you must complete Form SS-5 and provide at least two documents to prove your age, identity, and US citizenship or work-authorized immigration status.
You may 800-772-1213 or visit the local Social Security office to request Form SS-5.
How to Get an EIN Number?
There are four ways in which you can apply for EIN for your Shopify business. These include:
- Online application
- Application by Fax
- Mail Application
- Application by Telephone
1. Online Application
To apply online, you must visit the IRS website. Note that there are certain requirements that you must meet to become eligible to apply for EIN online. Read our article to know in detail how you can apply for EIN online for your Shopify business.
2. Application by Fax
To apply for EIN through fax, the applicants must complete Form SS-4 and send it via fax to the appropriate Fax Number. Click here to know the fax number where the applicants need to send their Form SS-4. If the applicants have provided their fax number, a fax will be sent back with the EIN within four (4) business days.
3. Mail Application
To apply for EIN through mail, the applicants must complete Form SS-4 and send it through mail to the appropriate mail address. Click here to know the mail address where the applicants need to send their Form SS-4. Note that the IRS will take 4 weeks to process the EIN application form. Applicants need to ensure that Form SS-4 contains all of the required information.
4. Application by Telephone
To obtain EIN, international applicants must call 267-941-1099 (not a toll-free number) between 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday. Note that the individual making the call must be authorized to receive the EIN and answer questions concerning Form SS-4.
How to Get an ITIN Number?
You must fill out Form W-7 which is the Application for Individual Taxpayer Identification Number to apply for ITIN. Further, while completing the Form, you must also attach documents proving an individual’s foreign or alien status and true identity.
You can either mail the documents along with Form W-7 to the address mentioned in Form W-7 instructions manual or process your application through the IRS-authorized Acceptance Agent. The Acceptance Agents are the IRS-authorized entities that assist applicants in obtaining ITINs. These agents review your application documents and forward the completed Form W-7 to IRS for processing.
To obtain an ITIN, you must complete IRS Form W-7, IRS Application for Individual Taxpayer Identification Number. The Form W-7 requires documentation substantiating foreign/alien status and true identity for each individual. You may either mail the documentation, along with the Form W-7, to the address shown in the Form W-7 Instructions, present it at IRS walk-in offices, or process your application through an Acceptance Agent authorized by the IRS.
Is TIN the Same As SSN?
No. TIN and SSN are not the same. As mentioned in the section above, the IRS issues different types of tax identification numbers.
TIN or EIN is the federal tax identification number that taxpayers use to file federal tax returns with the IRS. It is a 9-digit number that the IRS issues to businesses and non-profit organizations to identify them as taxpayers filing tax returns with the IRS.
SSN is a type of taxpayer identification number that the Social Security Administration (SSA) issues to individuals who are employed in the U.S. to file an income tax return. That is, individuals who are employed and receive wages in the US must have an SSN.
How Do I Change My TIN On Shopify?
To change your Sales tax ID on Shopify, you need to follow the steps below:
1. Go to your Shopify Admin.
2. Then, click on ‘Settings’ at the extreme left corner of your Admin Page. Then from the menu, select ‘Taxes and Duties.
3. Once you click on ‘Taxes and Duties’, the page showcases various sections including ‘Manage Sales Tax Collection, ‘Duties and Import Taxes’, and more options. In the ‘Manage Sales Tax Collection’ section, click your country or region.
4. The moment you click on the country or region, the taxes and duties page of your selected country opens. This page displays options like ‘Manage Tax Collection’, ‘Tax Rates and Exemptions’, and ‘Reporting’. Go to the ‘Manage Tax Collection’ section and click ‘Collect Sales Tax’ in blue on the right side.
5. On clicking ‘Collect Sales Tax’, a dialog box will open. In the dialog box, in the ‘Tax Number’ section, enter your tax number. In case you do not have a tax number at present and have applied for one, then leave this field blank. You can update this field whenever you receive your tax number.
6. Finally, to save the settings, click on the ‘Collect Tax’ button.
7. If you want to add more regions and account numbers, click ‘Collect Sales Tax’.
If you have already set up ‘Shopify Payments’ as your payment method and did not add EIN while setting up, then to add EIN, you need to follow the steps below.
1. Log in to your account and select ‘Settings’ in the left corner at the bottom
2. Then select ‘Payments’. Under ‘Payments’, click on the ‘Edit’ button in this section in ‘Shopify Payments’.
3. After clicking on the ‘Edit’ button, you will notice that in the ‘Tax Details’ box, there’s a message that says ‘Your business details could not be verified’. To update this section with valid information, click ‘Update’ business details.
4. Then, add your valid tax information in the Tax Details dialog box. After you have entered the details, click on the ‘Save’ button to update your details.
There’s another way you can add your EIN in Shopify. First, log in to your Shopify account and go to the “Settings” tab. After clicking the ‘Settings’ tab, select ‘Taxes’. Under the “Taxes” section, click on “Edit” to add your EIN.
Then, enter your EIN in the appropriate field and click “Save”. This is how you will add EIN to your Shopify account.
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