How to Apply for an ITIN in the USA and Key Tax Considerations
Navigate the ITIN application process with ease and understand essential tax considerations for non-residents in the USA.
Understanding how to apply for an Individual Taxpayer Identification Number (ITIN) in the United States is essential for individuals who are not eligible for a Social Security Number (SSN) but need to meet tax obligations. The ITIN allows non-residents and other qualifying individuals to comply with U.S. tax laws.
Eligibility Factors
ITINs are issued to individuals who need a U.S. taxpayer identification number but do not qualify for an SSN. This includes non-resident aliens filing a U.S. tax return, resident aliens based on U.S. presence, and dependents or spouses of U.S. citizens or resident aliens.
Applicants must have a federal tax purpose, such as filing a tax return or being listed as a dependent or spouse. For example, a foreign investor earning U.S. income or a foreign student with a taxable scholarship needs an ITIN. Individuals claiming tax treaty benefits also require an ITIN to access reduced tax rates or exemptions.
Required Documentation
To obtain an ITIN, applicants must submit Form W-7, which includes personal information and the reason for the application. Accuracy is critical to avoid delays.
Applicants must provide original documents or certified copies to verify identity and foreign status. A valid passport serves as a stand-alone document, but other combinations, such as a national ID card, U.S. driver’s license, or birth certificate, may also be used. Documents in a foreign language must include a certified translation.
Application Steps
Applying for an ITIN involves completing Form W-7 and providing the necessary documents. Only original or certified copies are accepted; notarized copies are not allowed.
Applications can be submitted by mail, in person at an IRS Taxpayer Assistance Center, or through an IRS-authorized Certified Acceptance Agent (CAA). CAAs can verify documents and certify copies, minimizing the risk of sending originals by mail, which is especially helpful for applicants outside the U.S.
Renewal Considerations
ITINs expire if not used on a federal tax return for three consecutive years. ITINs issued before 2013 follow a renewal schedule based on their middle digits. Renewal requires completing Form W-7 and submitting identification documents. Starting the renewal process before tax season avoids delays and potential penalties.
Tax Filing Requirements
ITIN holders must file a federal tax return if their income meets IRS thresholds. For instance, a single filer earning at least $13,850 in 2023 must file a return. ITIN holders typically use Form 1040 or 1040-NR, depending on residency and income sources.
While ITIN holders cannot claim the Earned Income Tax Credit, they may qualify for the Child Tax Credit or Additional Child Tax Credit if dependents have valid SSNs. ITIN holders must report worldwide income and accurately document income and deductions to avoid penalties.
For U.S.-sourced income, such as rental income, foreign nationals may face a 30% withholding tax unless they elect to treat the income as effectively connected with a U.S. trade or business. Filing a tax return with an ITIN is necessary to reconcile withholding amounts and claim refunds. Timely and accurate filing is crucial to avoid penalties.
Key Differences From an SSN
ITINs and SSNs serve distinct purposes. SSNs, issued by the Social Security Administration, are for employment and social security benefits, while ITINs, issued by the IRS, are for tax reporting. ITINs do not authorize work in the U.S. or provide eligibility for federal benefits.
SSNs are often required for financial transactions, whereas ITINs have limited use. Some financial institutions accept ITINs for opening accounts or applying for mortgages, particularly those serving immigrant communities. It’s important to verify a financial institution’s policies when using an ITIN.
Dependents generally need SSNs to qualify for most tax credits, but ITINs are used for dependents who don’t qualify for SSNs, such as foreign-born children living abroad. ITINs cannot be used for identity verification in non-tax contexts, such as applying for driver’s licenses, which limits their utility compared to SSNs.