In the year 1996, the US Department of Treasury set up new laws and regulations. In accordance with these regulations, Individual Taxpayer Identification Number (ITIN) was introduced for the foreigners living and working in USA. This step was taken to address the concerns of the Internal Revenue Service (IRS) regarding identification and processing of the income tax returns filed by foreign taxpayers.

The Internal Revenue Service started issuing individual taxpayer identification numbers to US non-resident aliens so that they could use them as a unique identity number on their federal income tax returns.

An ITIN is a nine-digit number starting with the number 9 with a format 9xx-xx-xxxx.By law, this number is required by individuals who need to file their US tax returns but are not eligible for getting a Social Security Number (SSN) from the Social Security Administration (SSA).

What is the use of an ITIN?

US government issues an individual taxpayer identification number to certain resident and non-resident aliens, their spouses and dependents, for fulfilling their tax paying demands. The use of ITIN is restricted for tax purposes only. It is not meant to serve any other purpose.

Who needs an ITIN?

Any individual, US resident or non-resident alien, who is not eligible to get a SSN but needs legal tax identification, must apply for an individual taxpayer identification number. Applicant must have a tax purpose or a valid tax filing need for requesting an ITIN. Here are a few examples of people who need this number.

  • A foreigner in the US who is eligible to get the benefits of a decreased tax withholding rate under the law of ‘Withholding of tax on Non-resident Aliens and Foreign Entities’.
  • A non-resident alien who is need of filing a US tax return but is not eligible to obtain a SSN.
  • A non-resident alien who needs to file a tax return to claim a refund only.
  • Resident or non-resident individuals who need to file a joint income tax return with their US resident spouses, without a SSN.
  • A US immigrant (based on substantial presence test) who is filling a US federal tax return without a social security number.
  • A foreigner spouse, not eligible for SSN, who is claimed as an exemption on a US tax return.
  • A dependent individual claimed on a tax return who is not eligible to get a SSN.
  • A non-resident professor, student, or researcher who does not have a SSN but needs to file a US tax return.

Is ITIN valid for identification?

ITINs do not function as a proof of identification outside the tax system. IRS issues individual taxpayer identification numbers to help people obey the US tax laws and provide an efficient way for the processing of tax returns for those who do not get a SSN from the Social Security Administration.

When does an ITIN deactivate?

According to the latest announcement by the IRS, applicants must use their ITIN within every five successive years, otherwise it will be deactivated. An applicant with a deactivated ITIN can reapply using the same Form W-7.

Individual Taxpayer Identification Numbers – To be Filled Manually on W-2 Forms

In an effort to reduce identity theft and taxpayer frauds, the IRS (Internal Revenue Service) made certain changes to the old rule of preparing W-2 Forms for the taxpayers who use individual taxpayer identification numbers (ITINs) as their tax identity. According to new rule, in effect from 2011, taxpayer identification number must be filled in a W-2 form manually.

Previously, W-2 forms used to be completed electronically via tax software or payroll software. With this automated system, IRS encountered a lot of fraudulent activities from certain tax preparers and from taxpayers themselves. Finally, IRS announced to change the system into manual completion of W-2 Forms.

What is W-2 Form used for?

W-2 Form is a ‘wage and tax statement’ given by an employer to the employee. Employees need W-2 Forms to file their federal income tax returns. Employers are required to provide an employee with the W-2 before the beginning of the tax filing season.

The format of a W-2 depends on the type of payroll software the employer is using. However, the content for a W-2 remains the same. Employee’s social security number (SSN) must be mentioned on the W-2, which can be replaced by an individual taxpayer identification number if the employee is not eligible for a SSN.

Who Use ITIN?

Individual taxpayer identification number is usually provided to those taxpayers who are not eligible to get a social security number. These individuals include US non-residents and certain resident aliens. In case of such an employee, ITIN is used on W-2 Forms in place of social security number.

What is the Format of an ITIN?

An ITIN is often confused with a social security number as both the numbers are similar in appearance. Like a SSN, individual taxpayer identification number is also a 9-digit number that starts with the number 9 and have a range of 70 to 99 in the fourth and fifth position.

What will happen in case of non-compliance?

According to IRS, if employers and other W-2 Forms preparers fail to observe this rule, they will be stopped from using the online filing system of forms. This will lead to a more complex situation for employers as they will require manual filing of all the W-2 Forms. In addition, IRS will also issue warning letters in case of disobedience.

How will Employers adapt to the New ITIN Rule?

Payroll software that electronically fills out W-2 Forms is hard-coded software. It is not easier for the employers to modify it so that they can able to skip the insertion of either ITIN or social security number on the forms. Those who have previously installed W-2 preparation software will need to consult software experts for modifying their software.

The Way Forward for ITIN Numbers

Internal Revenue Service is consistently working and changing its policies to maintain the integrity of its tax collection system. More changes are expected in future to avoid tax-related frauds and information theft. These changes may impact various payroll systems used by employers for tax preparation processes. Therefore, employers need to be informed about the IRS’s policy updates and should plan their payroll processes accordingly.

If you want to apply for an, Individual Taxpayer Identification Number, or ITIN tax number and have any other questions, please feel free to contact us at 888-509-3616. If you have any suggestions please share those with us as well. Freedomtax ITIN Number has a professional team of IRS Certifying Acceptance Agents, and tax accounting professionals with more than 16 years of experience, helping immigrants with their ITIN application. Freedomtax can also help immigrant entrepreneurs incorporate a business in the USA. Freedomtax ITIN Tax Number Online services provides Quality, Professional Service with a Family Feel.


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