What is an ITIN
Everything You Need to Know About ITIN: Eligibility, Uses, and Costs
An Individual Taxpayer Identification Number (ITIN) is a nine-digit number issued by the Internal Revenue Service (IRS) to individuals who need to file U.S. taxes but aren’t eligible for a Social Security Number (SSN). This number helps individuals comply with U.S. tax laws and facilitates certain financial transactions. In this post, we’ll go over everything you need to know about ITINs, including eligibility, ineligibility, uses, documentation, processing time, responsibilities, and costs.
Who is Eligible for an ITIN?
Several categories of individuals may be eligible to apply for an ITIN. Here are the main groups who can obtain an ITIN:
- Non-Resident Aliens: Individuals who are required to file a U.S. tax return but are not eligible for an SSN. Typically, this category includes people who:-
- Are working in the U.S.
- Own US business entity/LLC
- Are engaged in stock trading and broker withholds 30% tax
- Receive rental income from U.S real property or engaged in real property business.
- Own interest or shareholding in U.S partnership (multi-member LLC)
- Own interest or shareholding in U.S Corporation
- Resident Aliens for Tax Purposes: Individuals who live in the U.S. but are not eligible for an SSN. They might be required to file taxes based on their income.
- Dependents or Spouses of U.S. Citizens or Resident Aliens: If you’re a dependent or spouse of someone who is filing a tax return in the U.S., you may need an ITIN to be included on their tax documents.
- U.S. Visa Holders: Individuals who are in the U.S. on specific visa types (e.g., work visa, student visa) and are required to file taxes might need an ITIN if they don’t qualify for an SSN.
Who is Not Eligible for an ITIN?
Not everyone qualifies for an ITIN. Here’s a list of who cannot obtain an ITIN:
- U.S. Citizens: If you are a U.S. citizen, you are not eligible for an ITIN, as you are required to have a Social Security Number (SSN).
- Individuals with a Valid SSN: If you already have an SSN, you do not need an ITIN. The IRS requires only one taxpayer identification number.
- Temporary Residents: Individuals who are in the U.S. on certain types of visas that do not require tax filings (e.g., tourist visas) do not qualify for an ITIN.
- Dependents or Spouses of U.S. Citizens/Residents with SSNs: If your U.S. spouse or parent already has an SSN, you should use their SSN rather than apply for an ITIN.
Uses of an ITIN
An ITIN is primarily used for tax purposes, but it can also be helpful for other activities. Here’s a breakdown of its main uses:
- Filing U.S. Taxes: The primary purpose of an ITIN is for individuals who are required to file U.S. income tax returns but are ineligible for an SSN. This includes both residents and non-residents who have taxable income.
- Opening Bank Accounts: Some banks may require an ITIN to open an account for individuals who don’t have a Social Security Number.
- Applying for Loans or Mortgages: An ITIN can help individuals apply for financial products like loans or mortgages, even if they don’t have an SSN.
- Claiming Tax Benefits: If you are a dependent or spouse of a taxpayer, an ITIN can help you be included in tax returns, potentially allowing your family to claim tax credits, such as the Child Tax Credit.
- Obtain Health Coverage: Some states may require an ITIN to qualify for healthcare programs.
Documentation Required to Apply for an ITIN
To apply for an ITIN, you’ll need to submit certain documents to the IRS. These documents help prove your identity and foreign status. Here’s a list of common documents required:
- Form W-7: This is the application form for an ITIN. You must complete it and submit it with the required documents.
- Passport or National ID Card: A valid passport is the most common document used to establish both identity and foreign status. However, if you don’t have a passport, you may submit two or more documents from the following list:
- Birth certificate
- U.S. or foreign driver’s license
- Foreign voter’s registration card
- Foreign military ID card
- Medical records (for dependents under 6 years old)
- School records (for dependents under 18)
- Tax Return: You need to include a U.S. tax return (or proof of one) with your application. If you’re not required to file taxes yet, you might need to provide documentation explaining why you need the ITIN.
- Other Supporting Documents: Additional documents might be required depending on your specific case. For example, if you’re applying as a dependent or spouse, you may need additional proof of your relationship to the U.S. taxpayer.
Processing Time for ITIN Applications
The IRS typically takes 7 to 11 weeks to process an ITIN application, though this can vary depending on several factors such as the volume of applications or whether all required documents are submitted. Here are a few things to keep in mind:
- Delays: Processing may be delayed if the IRS requires additional information or if the application is incomplete.
- Filing Deadline: If you need your ITIN to file taxes, make sure to apply well in advance of tax season.
- Expedited Processing: The IRS does not offer expedited processing for ITIN applications.
Responsibilities of an ITIN Holder
As an ITIN holder, there are several responsibilities to be aware of:
- File Taxes: ITIN holders must comply with U.S. tax laws, meaning they must file tax returns (if required) and report all income to the IRS.
- Update Information: If your personal information changes (e.g., name, address, or marital status), you should update the IRS so they have the most current details on file.
- Use Only for Tax Purposes: An ITIN is strictly for tax-related purposes. It cannot be used as identification for other purposes like work eligibility or benefits.
- Ensure ITIN Is Active: ITINs that are not used for tax filings in three consecutive years are deemed inactive. You must ensure that you’re filing your taxes regularly to maintain your ITIN’s validity.
Role of Certifying Acceptance Agent (CAA)
A Certified Acceptance Agent (CAA) plays a key role in helping clients obtain an Individual Taxpayer Identification Number (ITIN). Here’s how:
- Application Assistance: CAAs assist clients who are not eligible for a Social Security Number (SSN) in applying for an ITIN by helping them complete IRS Form W-7.
- Identity Verification: CAAs are authorized by the IRS to verify the client’s identity and foreign status. This is crucial, as clients must submit original documents (like passports) or certified copies. A CAA can verify these documents directly, so clients don’t have to send originals to the IRS.
- Submission to IRS: After verifying the identity documents, the CAA submits the completed Form W-7 and supporting documents to the IRS on behalf of the client, ensuring the application is accurate and complete.
- Expedited Process: Since CAAs are trusted by the IRS, using one can help speed up the ITIN application process, as they ensure everything is correct before submission.
In summary, a CAA simplifies the ITIN application process by verifying the client’s documents and submitting the paperwork to the IRS, reducing the risk of errors and delays.
Costs of Obtaining an ITIN
There are several costs involved when applying for an ITIN:
IRS Application Fee: There is no application fee for applying directly to the IRS for an ITIN, but some third-party service providers may charge fees for assisting with the application.
Professional Service Fees: If you choose to hire a tax professional, accountant, or attorney to help with your ITIN application, you’ll need to cover their service fees. These can vary depending on the complexity of your case.
Tax Filing Costs: If you need to file a U.S. tax return as part of your application, there may be additional costs for preparing and filing your tax returns, especially if you hire a professional to assist.
Renewal Fees: If your ITIN needs to be renewed (after the IRS deems it inactive), you may also incur additional costs to reapply.
Conclusion
An ITIN is a crucial tool for individuals who need to fulfill their U.S. tax obligations but are not eligible for an SSN. Whether you’re a non-resident alien, a dependent, or a resident alien, obtaining an ITIN helps ensure that you can file taxes, access financial services, and fulfill other legal requirements. Make sure to gather the necessary documentation, understand the costs, and follow the IRS guidelines for application and renewal.
If you’re unsure about the process or need help with your application, consider consulting 4SYTE , an IRS approved Certifying Acceptance Agent, to ensure everything is handled correctly. With the right approach, obtaining and managing your ITIN will help you stay compliant with U.S. tax laws.
