An ITIN is not the same as an SSN and is not a number to be selected as an alternative to an SSN. This will depend on eligibility. An SSN is the regular taxpayer identification number for most individuals and an ITIN is used for someone who needs an U.S. taxpayer number for federal tax-related purposes but doesn’t qualify to obtain an SSN. Applying for the incorrect one can lead to delay of return, refund or employment paperwork.
You Do Not Choose Between an ITIN and an SSN
The key principle of the ITIN vs SSN comparison is straightforward: If you have an SSN, or are eligible to obtain one, use it. Do not obtain an ITIN if there is no federal tax purpose and cannot obtain an SSN. The IRS, not a bank, landlord, employer, or tax preparer, issues ITINs.
If a nonresident taxpayer earns $42,000 in U.S.-source income and $4,600 in withholding, what is their gross income?What is the gross income for a nonresident taxpayer who earns $42,000 of U.S.-source income and has $4,600 withheld? An ITIN might be used to enable the IRS to process a U.S. return and match the income to the taxpayer if that person is not eligible for an SSN. The ITIN won’t become an SSN when he/she opens a bank account or a company.
A great deal of a personal finance guide for beginners must differentiate tax identification from immigration and employment laws. The number on a tax return may only be used to answer identification questions, not all questions of the law concerning the individual who has the tax return.
What an SSN Is Used For
The Social Security number is a nine-digit number that is the primary taxpayer identification number for most people in the United States. It is used by the employer for wage and payroll tax reporting, and by the individual when completing federal tax returns and other records which require a taxpayer identification number.
Suppose a worker makes $55,000 and $6,200 of federal income tax is deducted. The employer reports the wages with the employee’s SSN and the employee reports them with the employer. The wage report, withholding, and tax return are matched and linked to the right person with the help of matching numbers.
An SSN is not a debt-repayment or financial score. While both the SSN and the ITIN are essential to creating a credit score, credit score tips can help you build a better file. Your net worth is based on what you own and what you owe, not on the taxpayer number on a form.
What an ITIN Does and Does Not Do
Like all social security numbers, an ITIN is nine digits long, but it starts with the number 9, and looks like all social security numbers do, with a three-two-four structure. It is authorized to certain resident and nonresident aliens, spouses and dependents who require a U.S. taxpayer identification number but are ineligible for an SSN.
According to the IRS, an ITIN is only issued for federal tax purposes, and it does not give tax return filers Social Security benefits, the earned income credit, immigration status or the right to work. It is not just to create an account, use an online marketplace or start a business.
An ITIN can be seen on financial or tax documents, but is not a work permit, immigration document or proof of financial approval. If a person is applying for $10,000, the lender will look at income, debts, payment history and the lender’s identification requirements. Those are not properties of the number that is nine digits long.
How the Number Affects Tax Filing and Refunds
Both numbers can be used by a taxpayer to identify them on a federal return, but there are eligibility rules for tax benefits. Not all deductions and credits are available for all ITINs. The taxpayer is required to meet the requirements of the particular filing status, deduction, treaty, or credit.
Now, imagine a filer who had $3,800 withheld from them and is computing a $2,900 federal tax liability.Suppose, for example, that the filer had $3,800 withheld, and the filer would compute a federal tax liability of $2,900. The fundamental difference is that a $900 refund is made before other adjustments. Using an ITIN does not authorize the refund, but it does help to identify an eligible filer and process the return. The result is calculated from the income, withholding, deductions, payments and rules of tax.
A spouse or dependent might require his or her own taxpayer identification number on a return claiming an allowable tax benefit that includes him or her. Typically, the IRS will want to get a new Form W-7 for every individual member of a family.
Have copies of tax documents with the records that you use to keep track of your spending. Even if the taxpayer number is right, a missing W-2, 1099, withholding statement or previous ITIN notice will delay preparation.
How to Apply for the Correct Number
Typically, an ITIN applicant completes and files a federal income tax return, Form W-7, and provides evidence of identity and foreign status. Some of the applicants are eligible for waiver of return attachment. In most instances, a valid passport could be used as an identity and foreign status document, and applicants that do not have a passport usually require an acceptable combination of documents.
Any applications can be mailed to IRS or submitted via IRS Taxpayer Assistance Center, a participating VITA site, or through an IRS accepted acceptance agent. There are no fees at IRS Taxpayer Assistance Centers that handle ITIN cases, but private acceptance agents might have fees. In-person applications can decrease the need for original documents to be sent in the mail.
The IRS recommended a time period of 7 weeks for an ITIN decision, or 9 to 11 weeks from Jan. 15 to April 30 during the busy season and applying from abroad. Mailing supporting documents will usually be returned in 60 days.
An owner’s SSN or ITIN is not the only identification sought by a lender when considering a small business loan; they may also request an EIN and business records. In order to avoid losing the ability to obtain an ITIN, do not apply for an ITIN just because a private company asks for a tax number for no federal tax purpose.
What Happens When Your Status or ITIN Changes
If an ITIN holder becomes eligible for and receives an SSN later on, it is the person’s responsibility to use the SSN, not the ITIN, for future tax filings. The tax records might need to be matched with a specific SSN to tie up income previously reported under the ITIN.
An ITIN can be cancelled if it is not used on a federal income tax return for three successive tax years. The person holding the expired number will normally be required to file a new federal return using Form W-7 and the supporting documents to get a new number. Using an expired ITIN to file may cause delays in processing and may impact certain tax benefits.
Don’t assume an ITIN will be renewed just because it was issued. When the number is for federal tax filing, the renewal is required. Leave the assignment notice and previous returns for easy identification of the old number.
The Bottom Line
Use an SSN if you already have one or might be eligible for one. Only use an ITIN if you cannot get an SSN for a Federal tax purpose. Check if you are eligible before applying, collect up-to-date ID papers, and determine if it’s safer to mail originals or use a face-to-face service. Before filing the next return, update the record if your eligibility has changed or if an ITIN has expired.
Frequently Asked Questions
May use ITIN in place of SSN?
An ITIN may only be used for an eligible federal tax purpose if you have no and cannot get an SSN. You can’t apply for an ITIN just because it’s easier to apply for or because you don’t want to use an SSN.
May How to use an ITIN number to work in the U.S.?
An ITIN is not a right to work nor employment authorization. It is not a work permit or immigration document – it is a tax processing number.
How long does it take to get an ITIN?
The IRS typically recommends giving a 7 week waiting period after applying. It can take between 9 – 11 weeks to process between January 15 and April 30, including during busy tax seasons or when the application is filed from overseas.
Discamiler:
This article is for general informational purposes only and does not constitute financial advice. Please consult a qualified financial adviser for guidance specific to your situation.
