A Taxpayer Identification Number (TIN) is an identification number used to monitor tax laws. It is either issued by the Internal Revenue Service (IRS) OR Social Security Administration (SSA). There are different types of Identification Numbers:
- Individual Taxpayer Identification Number (ITIN)
- Social Security Number (SSN)
- Employer Identification Number (EIN)
- Preparer Tax Identification Number (PTIN)
- Taxpayer Identification Number for Pending US Adoptions (ATIN)
In this article, our focus will be mainly on ITIN, SSN, and EIN. We will take a deeper dive into each one of these for your understanding.
What Is an ITIN Number?
ITIN stands for Individual Taxpayer Identification Number, which is a tax processing number issued by the IRS. It applies to certain non-residents and foreign nationals, their spouses, and dependants who are not eligible to get a Social Security Number. ITIN is a nine-digit number starting with the digit 9 and written as NNN-NN-NNNN.
It is because of the IRS that the federal government is able to collect billions of tax dollars from within the country. The ITIN helps IRS in doing so.
The IRS established ITIN in July 1996 to ensure that foreign nationals and other individuals who don’t have an SSN comply with US tax laws.
How to Apply for an ITIN Number?
It is fairly easy to apply for an ITIN number with the steps below:
- Applicants have to fill out a W-7 form that goes to the IRS.
- Next, applicants have to submit all relevant documents that clearly specify their foreign status and identity.
- Once the W-7 form and all the documents are ready, it is now time to submit them for approval. You can do it in three ways:
- Mail the form and the documents to the address given on the form
- Submit the documents physically in one of the walk-in IRS offices
- Process your application through an IRS authorized Acceptance Agent
For context, Acceptance Agents include entities such as accounting firms, colleges, or financial institutions authorized by the IRS. They ensure that all the documentation and W-7 forms are complete before sending them to the IRS for further processing.
Who Is Eligible for an ITIN Number?
In general, people who do not have lawful status in the country have to obtain an ITIN. But in addition to that, the following regardless of their lawful status may obtain an ITIN as they can not get SSN:
- Foreign entities who conduct business in the US such as corporations, partnerships, estates, and trusts. They come under the category of foreign non-residents because although they operate their business in the US, they don’t live there.
- A foreign national student who eventually becomes a resident based on the number of days present in the US.
- Dependent or a spouse of a foreign national.
- Spouse or a dependent of a US citizen or someone with a lawful permanent residence.
What Does an ITIN Not Permit?
The ITIN number does not take care of the following:
- An ITIN holder cannot use it to seek a legal immigration status in the US or prove their legal presence.
- ITIN neither provides authorization to work nor can it be used to prove work authorization.
Benefits of Obtaining an ITIN
An ITIN fulfills several purposes and provides benefits to the ITIN holder as well. Let’s have a look at a few of them.
- ITIN strengthens the tax system of the country by bringing in more people to pay taxes.
- Holding an ITIN does not qualify one to receive tax and public benefits such as Social Security benefits or the Earned Income Tax Credit. However, once an ITIN holder is able to get an SSN, they become eligible to receive the aforementioned benefits. For that, they have to become a lawful US permanent resident.
- Some ITIN holders can receive Child Tax Credit (CTC). According to the legislation, CTC amounts to $2000 per qualifying child depending on the applicant’s income. The child only qualifies if they have an SSN.
- An individual with an ITIN can open an interest-bearing bank account in the US.
- According to the laws in some states, ITIN holders can get a driver’s license, a state identification card, or a driver’s permit. In this case, not having an SSN does not matter.
- Foreign nationals and resident aliens can use ITIN to file their tax returns in order to provide proof of residency.
- In March 2020, Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed to provide relief to people during the pandemic. ITIN holders with one spouse in the Armed Forces are eligible to receive stimulus payments under the CARES Act. This is a mandatory condition for ITIN holders and they will not receive the payment otherwise.
How Long Does It Take To Get an ITIN Number?
If an applicant has submitted all the relevant documents and W-7 form, then the IRS assigns the ITIN within seven weeks. In case the applicant hasn’t received an ITIN seven weeks after submission, they can check their application’s status at the given numbers.
Do ITIN Numbers Expire?
Yes, they do. In case an applicant wants to renew their existing ITIN number they must fill the W-7 form without filing a tax return. In case an applicant files a tax return with an expired ITIN and forgets to renew, the IRS will delay processing the tax returns. To renew an ITIN, applicants can do it in the same three ways as they did when obtaining an ITIN.
SSN vs ITIN
ITIN and SSN serve the same purpose to some extent. Therefore, it is common to have non-residents get confused and use these terms interchangeably. However, an individual can not have both numbers at the same time. More importantly, the IRS issues these numbers differently and to different individuals.
Therefore, it is important to understand the distinction between the two.
What Is an SSN?
An SSN stands for Social Security Number that is issued to US citizens and authorized non-citizen residents. Authorized residents include students on F1 visas and green cardholders. Both of these categories can legally work in the US.
People refer to an SSN as a personal ID for Americans. It is issued by the Social Security Administration (SSA).
Like the ITIN, it is a nine-digit number with the format XXX-XX-XXXX. The first three letters are called ‘area number’, the next two are called ‘group number’, and the last set is called the ‘serial number’.
All individuals who work and earn wages must have an SSN number must apply for one in case they don’t. All employers must request an employee’s SSN as soon as they are hired. Employers report employees’ wages using the SSN number. Parents should also get an SSN number for the children they claim on an income tax return.
Difference Between SSN And ITIN
The key difference between the two is that while SSN is issued to US citizens and authorized non-citizens, ITIN is issued to people with foreign status or immigrants who are not documented within the system. The latter cannot be given an SSN hence they have to use ITIN for tax purposes.
Another difference is that SSN doesn’t expire. Once issued, it is the receiver’s identity forever. ITIN, on the other hand, expires if not used for five consecutive years. This means, that if an individual does not file taxes for five years in a row, they will have to new their existing ITIN.
An important point to note here is that once a person gets an SSN, their ITIN will automatically become invalid. In that case, the person will now use SSN for all tax purposes.
Importance of SSN
SSN is the most important identification number one can have while living in the US. One should aim to get this number as it offers a variety of benefits that are not possible to claim with an ITIN. Examples include child care credit, Social Security disability income (SSDI), pensions, and other social services. SSN is also used for a wide range of financial and medical services.
With an SSN, it is simple to open a bank account which can also be done online. Moreover, SSN also makes it easy for people to apply for a student loan and file medical forms.
Furthermore, an SSN holder is also eligible to receive retirement benefits. Although it is possible to get a credit card without an SSN, having one makes the process seamless.
What is an EIN?
An EIN is an Employer Identification Number. It is again a nine-digit number but formatted differently than SSN and ITIN. It is written as XX-XXXXXXX. The following entities must have an EIN:
- Sole proprietors
- Non-profit associations
- Estates of decedents
- Government agencies
- Certain individuals, and other business entities
All the businesses and entities that have employees working under them or those that have to file tax returns must have an EIN. An EIN is only issued for tax administration purposes and not for any other activities such as sales, lotteries, or tax lien auctions.
Why Do You Need an EIN?
If you are operating a business, you will require an EIN. These are some of the reasons:
Finance and Banking
As a business owner, you will have the need to open a bank account. In that case, banks and credit unions require businesses to have an EIN. Having an EIN also means that you can easily get financing funds and working capital.
Another instance where a business requires an EIN is while hiring employees. This is because employers use EIN to track payroll tax remittances. In case of establishing any form of business other than a sole proprietorship, a business has to obtain an EIN. This holds true even when a business has no employees at all. The IRS will use EIN to track business income taxes.
Keogh is a tax-deferred retirement plan for self-employed individuals. If you are self-employed with such a plan, you will require an EIN.
Another case where EIN is needed is when a sole proprietor is filing for bankruptcy. Similarly, in a situation where you plan to inherit or purchase an existing business and plan to run it as a sole proprietor, you will have to obtain an EIN.
Steps to Apply for an EIN
People usually apply for an EIN when launching their business but they also do so for tax purposes or when applying for a loan. Follow the steps below to apply for an EIN number.
Check for the Eligibility Criteria
In order to get an EIN, you must ensure if you meet the following requirements:
- Your business should be in the US or US territories
- The applicant must have a valid identification number such as an SSN
Collect All the Necessary Information
For a smooth application process, make sure you have all the information given below:
- Form SS-4
- Names, SSN, and addresses of the responsible party
- Type of business entity that your company falls under
- In case you have a corporation, mention the state where it is incorporated
- Reason for applying for EIN
- The date on which you commenced your business
- Closing month of your business’s fiscal year
- Maximum number and type of employees you will be hiring during the next 12 months
- Description of the industry in which your business operates and your products and services
Apply for an EIN via Email, Fax, or Online
You have the option to choose either of the three methods. If you’re based in the US, applying online is a convenient option for you. However, if you are outside the US and plan on coming to the US for business purposes then you can also apply for an EIN via phone.
If you apply online via the IRS’s online application form, you get your EIN instantly once you submit it. In the case of applying through fax, it takes around four working days. However, if you submit your application via email, it may take up to four weeks.
An important point to remember is that if you choose to get your EIN via fax or email you will have to submit a completed SS-4 form.
The Key Takeaway
As a resident or a newcomer to the US, it is important to have an identification number. The identification number serves many purposes such as filing for tax returns or opening a bank account. It is advisable that you equip yourself with the relevant knowledge to better decide which identification number is most important to get. Hopefully, you are better able to understand the three identification numbers via this article.