Individual taxpayer identification number

What Is Individual Taxpayer Identification Number?

An Individual Taxpayer Identification Number (ITIN) is a nine-digit tax processing number issued by the Internal Revenue Service (IRS) to individuals who are required to have a U.S. taxpayer identification number but do not have, and are not eligible to obtain, a Social Security Number (SSN). The ITIN falls under the broader financial category of taxation and tax compliance, ensuring that all individuals with a U.S. tax filing requirement can meet their obligations, regardless of their immigration status. This unique identification number is used solely for federal tax purposes. It does not provide authorization to work in the U.S., confer eligibility for Social Security benefits, or change immigration status.²⁹

History and Origin

The Individual Taxpayer Identification Number program was established by the IRS on July 1, 1996. Its creation aimed to facilitate tax returns filing for individuals who had a U.S. tax obligation but were not eligible for a Social Security Number. Before the ITIN, many individuals, particularly non-citizens, faced challenges in complying with tax laws. The introduction of the ITIN provided a mechanism for these individuals, including both resident aliens and nonresident aliens, to fulfill their legal duty to pay taxes. The program ensures that the U.S. tax system remains comprehensive, covering all taxable income earned within its jurisdiction, irrespective of the taxpayer's ability to obtain an SSN.,²⁸

Key Takeaways

• An ITIN is a nine-digit tax processing number issued by the IRS for federal tax purposes only.²⁷
• It is specifically for individuals who are required to file U.S. tax returns but are not eligible for a Social Security Number.²⁶
• An ITIN does not provide work authorization, immigration status, or eligibility for Social Security benefits.²⁵,²⁴
• ITINs are crucial for tax compliance, allowing millions of individuals to pay their fair share of taxes.²³
• The number begins with the digit "9" and is formatted similarly to an SSN (NNN-NN-NNNN).

Interpreting the Individual Taxpayer Identification Number

The Individual Taxpayer Identification Number serves as a unique identifier for individuals within the U.S. tax system who do not possess an SSN. Its presence on a tax return or other tax-related document indicates that the individual has a U.S. tax filing requirement and is complying with tax laws. It is often required for individuals to claim certain tax benefits or exemptions, even if they are not U.S. citizens. For example, a foreign investor earning rental income from U.S. real estate would need an ITIN to file the necessary tax returns. Its use is limited strictly to tax administration, distinguishing it from general identification numbers.²²,

Hypothetical Example

Consider Maria, a recent immigrant to the United States who holds a visa that does not permit employment. She has some investment income from abroad that is subject to U.S. taxes due to her substantial presence in the country. Since she is not authorized to work and thus cannot obtain a Social Security Number, Maria needs an ITIN to file her tax return and report her income to the IRS. She completes Form W-7, "Application for IRS Individual Taxpayer Identification Number," attaches her U.S. tax return, and submits it with the required identification documents. Once her ITIN is issued, she can use this number on all future U.S. tax filings, ensuring her compliance with federal tax regulations.

Practical Applications

The Individual Taxpayer Identification Number has several practical applications, primarily centered around U.S. tax obligations. It enables individuals who are not eligible for an SSN to:

• File Federal Tax Returns: This is the primary purpose of the ITIN, allowing millions of individuals, including foreign investors, students, and certain family members of U.S. citizens or residents, to fulfill their legal obligation to report income and pay taxes.²¹,²⁰
• Claim Tax Treaty Benefits: Nonresident aliens from countries with tax treaties with the U.S. may need an ITIN to claim reduced rates of withholding or exemptions from U.S. income tax.¹⁹
• Open Bank Accounts and Build Credit: While not its primary function, some financial institutions accept ITINs in place of SSNs, providing ITIN holders with access to basic banking services and the opportunity to build a credit history and achieve financial stability.¹⁸
• Report Income and Withholdings: Employers may encounter situations where an employee provides an ITIN for tax reporting if they do not have an SSN. While ITINs do not authorize employment, they are used to properly report wages and tax withholdings.¹⁷

The Individual Taxpayer Identification Number ensures comprehensive tax collection by the IRS from all taxable activities within the U.S.¹⁶

Limitations and Criticisms

Despite its role in facilitating tax compliance, the Individual Taxpayer Identification Number has certain limitations and has faced criticism. Crucially, an ITIN does not provide legal authorization to work in the United States and does not alter an individual's immigration status.¹⁵ This means that while ITIN holders contribute to the tax system, they do not gain legal protections or benefits associated with work authorization.

One significant area of concern has been the potential for data sharing with other government agencies. Historically, the IRS has assured taxpayers that information provided for tax purposes would remain confidential. However, reports have indicated efforts to establish systems for sharing taxpayer data, including information linked to ITINs, with agencies like Immigration and Customs Enforcement (ICE).¹⁴ Critics argue that such data sharing could undermine the trust essential for tax compliance among sensitive populations and potentially expose individuals to enforcement actions, even if their sole intention was to fulfill tax obligations.¹³ Additionally, changes in eligibility for certain tax credits, such as the Child Tax Credit, have sometimes excluded families where parents use ITINs, even if their children are U.S. citizens with SSNs, leading to reduced access to benefits for some households.¹² The processing of ITINs has also been highlighted by the Taxpayer Advocate Service as an area that sometimes presents issues for taxpayers, including processing delays and challenges related to identity theft.¹¹

Individual Taxpayer Identification Number vs. Social Security Number

The Individual Taxpayer Identification Number (ITIN) and the Social Security Number (SSN) are both nine-digit identification numbers used within the United States, leading to frequent confusion. However, their purposes and issuing authorities differ significantly.

While both numbers are crucial for identification within their respective domains, the ITIN is exclusively for tax purposes, whereas the SSN serves a broader range of identification and benefits-related functions. An individual cannot have both an active ITIN and an SSN; if an ITIN holder becomes eligible for an SSN, their ITIN becomes inactive.

FAQs

Q: Who needs an Individual Taxpayer Identification Number?
A: An ITIN is needed by individuals who do not have a Social Security Number but are required to file a U.S. federal tax return or claim a tax treaty benefit. This can include certain nonresident aliens, resident aliens, and their spouses and dependents.⁵

Q: How do I apply for an ITIN?
A: You can apply for an ITIN by completing IRS Form W-7, "Application for IRS Individual Taxpayer Identification Number," and submitting it along with your original U.S. federal income tax return and required identification documents. Applications can be mailed, submitted in person at IRS Taxpayer Assistance Centers, or processed through IRS-authorized Acceptance Agents.⁴

Q: Can an ITIN be used for identification outside of tax purposes?
A: No, an ITIN is issued by the IRS for federal tax purposes only. It is not intended to serve as a general identification document outside of the federal tax system.³

Q: Does having an ITIN make me eligible for Social Security benefits?
A: No, holding an ITIN does not qualify you for Social Security benefits or change your immigration status. Eligibility for Social Security benefits is tied to having an SSN and accumulating sufficient work credits.²

Q: What happens if my ITIN expires?
A: ITINs may expire if they have not been used on a federal tax return for a certain number of consecutive tax years or if they were issued before a certain date. If your ITIN expires and you still have a U.S. tax filing requirement, you will need to renew it by submitting a new Form W-7 and a tax return.¹