Definition and Examples of Taxpayers
Anyone subject to taxes is a taxpayer, including individuals and entities like businesses. “The term ‘taxpayer’ means any person subject to any internal revenue tax,” according to the Internal Revenue Code, which also defines a “person” as “an individual, a trust, estate, partnership, association, company or corporation.”
For example, an individual who files the standard Form 1040 to report their federal income tax liability is a taxpayer. That individual could also lead a corporation that also counts as a taxpayer and files a separate tax return.
In other cases, however, a taxpayer might be an individual and business owner who only files one tax return. For example, a single-member LLC founder or a sole proprietor could elect to have their business be considered a “disregarded entity,” meaning only the individual is the taxpayer. The individual would report their business income on their personal income tax return, such as via Schedule C.
How Being a Taxpayer Works
Taxpayers must meet certain requirements to pay taxes, which can vary depending on the type of tax. For example, to potentially qualify as a taxpayer of federal income tax in the U.S., you simply have to have earned wages, even if you’re not a citizen.
It’s possible that an individual could end up not owing any federal income tax, such as if their income is low enough. However, they could still be considered a taxpayer if they incur one or more of the many other forms of taxation. For example, when you buy gasoline, you generally pay what is known as an excise tax. A taxpayer could also be someone who pays property tax based on the value of their home.
When an individual or an entity is a federal taxpayer, they have or need to obtain a taxpayer identification number. An individual U.S. citizen, for example, can use their Social Security number as their taxpayer identification number. Individuals who can’t get a Social Security number, such as some people who are not citizens, can obtain what’s known as an individual taxpayer identification number. Businesses that are taxpayers can obtain an employer identification number (EIN), as can other entities such as estates and trusts that have tax obligations.
These taxpayer numbers are used on various tax forms. For example, you would enter your Social Security number or EIN on a W-9 so that any income is associated with the right individual or entity.
What Being a Taxpayer Means for Individuals
Being a taxpayer also often means you’re entitled to a taxpayer bill of rights, such as those from the IRS or from state tax authorities. For example, the IRS declares in its Taxpayer Bill of Rights that taxpayers have “The Right to Pay No More than the Correct Amount of Tax.” For example, if more tax is withheld from your paycheck than you actually owe, you’ll receive a tax refund.
This type of right to not overpay can also apply to situations such as paying an incorrect amount of sales tax. New York State, for example, notes that taxpayers might be eligible for a refund in situations where “you paid sales or use tax in error.”
- A taxpayer is an individual or entity subject to certain types of taxes, such as federal or state income tax, sales tax, or property tax.
- While tax codes and similar documents might refer to a taxpayer as a “person,” that word can mean an individual person as well as corporations or estates.
- Being a taxpayer often means using a tax identification number. In some cases, such as for U.S. citizens paying taxes as individuals, that’s a Social Security number. In other cases, such as for corporations, an employer identification number could be used.
Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!