What Is an ITIN?
An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the U.S. Internal Revenue Service (IRS) to individuals who are required to have a U.S. taxpayer identification number but are not eligible to obtain a Social Security Number (SSN).64, 65, 66 This nine-digit number, formatted like an SSN (NNN-NN-NNNN) and always beginning with the number "9," falls under the broader financial category of [taxation].61, 62, 63 Its primary purpose is to ensure that all individuals with U.S. source income can comply with federal tax laws, regardless of their immigration status.58, 59, 60
ITINs are crucial for many individuals, including certain [non-resident alien]s, [resident alien]s, and their dependents, who need to file a [tax return] but cannot get an SSN.56, 57 While an ITIN allows for compliance with [income tax] obligations, it does not grant work authorization, provide eligibility for Social Security benefits, or alter immigration status.53, 54, 55
History and Origin
The Individual Taxpayer Identification Number (ITIN) program was established by the IRS on July 1, 1996.51, 52 Its creation stemmed from the necessity to enable individuals, particularly foreign nationals, who are not eligible for a Social Security Number, to meet their U.S. tax obligations. Prior to the ITIN, the IRS faced challenges in processing tax returns from such individuals, creating a gap in tax compliance. The introduction of the ITIN provided a mechanism for these taxpayers to fulfill their legal requirement to pay federal taxes.49, 50 The program was a direct response to the reality that many individuals, regardless of their immigration status, have [economic activity] in the U.S. that generates taxable income.48
Key Takeaways
- An ITIN is a nine-digit tax processing number issued by the IRS for federal tax purposes.46, 47
- It is specifically for individuals who do not have, and are not eligible to obtain, a Social Security Number.44, 45
- ITINs enable individuals to comply with U.S. tax laws and file federal tax returns.42, 43
- Possessing an ITIN does not grant work authorization, provide eligibility for Social Security benefits, or confer immigration status.40, 41
- An ITIN is typically obtained by submitting [Form W-7] along with a federal income tax return and supporting identity documents.39
Interpreting the ITIN
An ITIN itself is not a numeric value to be interpreted in terms of financial performance or risk; rather, its interpretation lies in its function within the U.S. [taxation] system. Its presence indicates that an individual has a U.S. tax filing requirement but lacks an SSN. For the IRS, an ITIN facilitates accurate tracking of income and payment of [tax liability] from individuals not covered by the Social Security Administration system.38
For the individual, an ITIN signifies their commitment to [tax compliance] within the United States. It allows them to fulfill federal obligations, such as reporting income and claiming eligible [tax credits], even if they are not eligible for all benefits associated with an SSN.35, 36, 37 Financial institutions may also accept an ITIN for certain purposes, such as opening [banking services] accounts, although this can vary and is not universally guaranteed.33, 34
Hypothetical Example
Consider Maria, a foreign national who recently moved to the U.S. for a temporary work assignment that does not qualify her for an SSN. She receives income from U.S. sources and needs to file an annual [income tax] return. To do this, Maria must obtain an ITIN.
She completes [Form W-7], the "Application for IRS Individual Taxpayer Identification Number," and gathers her passport as proof of identity and foreign status. She attaches her completed U.S. federal tax return to the Form W-7. After submitting these documents to the IRS, Maria receives her ITIN within a few weeks. Now, she can properly file her [tax return], report her U.S. income, and meet her federal tax obligations, all while adhering to U.S. tax law.
Practical Applications
ITINs are primarily used for U.S. federal tax reporting purposes. They allow millions of individuals, including foreign investors with U.S. real estate and certain international students and researchers, to fulfill their federal [tax liability].32 Specifically, an ITIN is essential for:
- Filing Federal Tax Returns: Any individual who earns income in the U.S. and is not eligible for an SSN needs an ITIN to file their annual [tax return]. This includes both [resident alien]s and [non-resident alien]s with U.S. tax obligations.31
- Claiming Tax Credits and Exemptions: While ITIN holders are not eligible for certain credits like the Earned Income Tax Credit, they can claim other credits, such as the Child Tax Credit (if the child has an SSN) and the Credit for Other Dependents, or exemptions for dependents.28, 29, 30
- Opening Bank Accounts: In some instances, financial institutions may accept an ITIN to open [banking services] accounts. This helps individuals engage in the formal financial system, though policies vary by institution.27 Research by Reuters has highlighted the challenges many non-citizens, including ITIN holders, face in accessing comprehensive banking services.26
- Facilitating Mortgages and Loans: Some lenders may accept ITINs to facilitate mortgages or other loans, particularly for foreign investors in U.S. real estate.25
- Building Tax History: Consistently filing taxes with an ITIN establishes a record of [tax compliance], which can be beneficial in future financial planning or, in some cases, for immigration purposes.24
Limitations and Criticisms
Despite their utility, ITINs come with significant limitations and have faced criticism. A primary drawback is that an ITIN does not authorize an individual to work in the U.S., nor does it provide eligibility for many public benefits, including Social Security benefits and the Earned Income Tax Credit (EITC).21, 22, 23 This means that even though ITIN holders contribute billions of dollars annually to federal, state, and local taxes, they are often excluded from receiving certain benefits funded by those taxes.19, 20
Another limitation revolves around financial access beyond basic [banking services]. While some institutions may allow ITIN holders to open accounts, they often face challenges in accessing a full range of financial products, such as establishing a strong [credit score] or accessing certain [investment accounts].18 The process of obtaining an ITIN has also been subject to criticism due to its complexity and the potential for delays, especially with requirements for submitting original identity documents.16, 17 Critics argue that these barriers can inadvertently discourage [tax compliance] among eligible individuals.14, 15
ITIN vs. Social Security Number
The fundamental difference between an ITIN and a [Social Security Number] (SSN) lies in their purpose and the benefits they confer. An SSN is issued by the Social Security Administration (SSA) to U.S. citizens and eligible non-citizens, primarily for tracking wages and eligibility for Social Security benefits. It also serves as a general identification number for employment and many government programs.13
In contrast, an ITIN is issued by the IRS solely for federal [taxation] purposes.12 It allows individuals who are not eligible for an SSN but have U.S. tax obligations to comply with tax laws. Unlike an SSN, an ITIN does not authorize employment, does not grant eligibility for Social Security benefits or the Earned Income Tax Credit, and does not provide immigration status.10, 11 While both are nine-digit taxpayer identification numbers, their underlying functions and associated rights differ significantly.
FAQs
Q: Who needs an ITIN?
A: An ITIN is needed by individuals who do not have, and are not eligible to obtain, a [Social Security Number] but are required to file a U.S. federal [tax return] or claim an exception from filing. This often includes certain [non-resident alien]s and [resident alien]s, as well as their spouses and dependents.8, 9
Q: Can an ITIN be used for identification purposes?
A: An ITIN is issued for federal tax purposes only and is not intended to serve as a general identification document outside of the federal tax system. While some financial institutions or state agencies may accept it for limited purposes, it does not provide legal work authorization or change immigration status.5, 6, 7
Q: How do I apply for an ITIN?
A: To apply for an ITIN, you must generally complete [Form W-7], "Application for IRS Individual Taxpayer Identification Number," and mail it along with your original U.S. federal income tax return and original or certified copies of identity and foreign status documents to the IRS. Alternatively, you can apply through an IRS-authorized Acceptance Agent.3, 4
Q: Do ITINs expire?
A: Yes, ITINs can expire. Generally, an ITIN that has not been used on a U.S. federal [tax return] for three consecutive tax years will expire. Also, ITINs issued before a certain date may expire based on their middle digits, requiring renewal if the individual still has a filing requirement.1, 2