Understanding the differences between an ITIN and an SSN is crucial for non-U.S. residents, digital nomads, and entrepreneurs engaging in business or tax-related activities in the U.S. This article provides a clear comparison of ITIN and SSN, outlining their purposes, eligibility requirements, and uses. Knowing these differences will help you make informed decisions and stay compliant with U.S. regulations.
What is an ITIN number?
An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service (IRS). It is a nine-digit number, formatted similarly to a Social Security Number (SSN), starting with the number "9" and having a range of numbers from "70" to "88" in the fourth and fifth digits (e.g., 9XX-70-XXXX).
Purpose of ITIN
The primary purpose of an ITIN is to facilitate the payment of taxes for individuals who are not eligible to obtain a Social Security Number. This includes non-resident aliens, resident aliens (based on the number of days they are present in the U.S.), their spouses, and dependents. Essentially, anyone who has tax reporting or filing obligations under U.S. law but is not eligible for an SSN will need an ITIN.
ITINs are used exclusively for tax purposes and do not authorize work in the U.S. or provide eligibility for Social Security benefits or the Earned Income Tax Credit. The IRS issues ITINs to ensure that people, regardless of their immigration status, are able to comply with U.S. tax laws. This includes filing tax returns and claiming tax treaty benefits, thereby ensuring that everyone pays their fair share of taxes.
Benefits of an ITIN Number
An Individual Taxpayer Identification Number (ITIN) offers several benefits, especially for non-resident and resident aliens who are not eligible for a Social Security Number (SSN). Here are some key advantages:
- Compliance with U.S. Tax Laws:
ITINs allow individuals to fulfill their U.S. tax obligations, ensuring they can file tax returns and pay taxes on income earned in the U.S. This compliance is crucial to avoid potential legal issues and penalties from the IRS.
- Access to Tax Benefits:
With an ITIN, individuals can claim certain tax benefits and credits. For instance, they can claim dependents in their tax returns, potentially reducing their tax liability. It also allows for the application of tax treaty benefits which can lower or eliminate taxes on certain types of income.
- Opening a U.S. Bank Account:
Many financial institutions in the U.S. accept an ITIN as a form of identification for non-residents to open bank accounts. Having a U.S. bank account can be beneficial for managing finances, especially for entrepreneurs and digital nomads conducting business in the U.S.
- Facilitating Business Operations:
For non-residents forming businesses in the U.S., an ITIN is essential for filing business tax returns. It also aids in obtaining Employer Identification Numbers (EINs) for businesses that are necessary for various business operations, including hiring employees.
- Receiving Tax Refunds:
Individuals with an ITIN can receive tax refunds from the IRS if they overpay taxes or qualify for certain tax credits. This ensures they are not financially disadvantaged compared to SSN holders.
- Building Credit History:
While an ITIN is not a substitute for an SSN, some credit card companies and financial institutions allow ITIN holders to build credit history in the U.S. Establishing a credit history can be advantageous for securing loans and other financial products in the future.
- Supporting Immigration Processes:
Having an ITIN can be useful in certain immigration processes, as it demonstrates a history of tax compliance. This can be beneficial for individuals seeking to change their immigration status or applying for certain immigration benefits.
Who needs an ITIN number?
An Individual Taxpayer Identification Number (ITIN) is essential for various individuals who have tax reporting obligations in the United States but are not eligible for a Social Security Number (SSN). Here are the primary categories of individuals who need an ITIN:
Non-resident Aliens
Non-resident aliens who have U.S. source income and are required to file a U.S. tax return need an ITIN.
This includes individuals who:
- Earn income from investments in the U.S., such as interest, dividends, or rental income.
- Are involved in a trade or business in the U.S. and need to report income and expenses.
- Are required to report income under tax treaties between the U.S. and their home country.
Foreign Nationals with U.S. Tax Reporting Requirements
Foreign nationals living outside the U.S. who have tax obligations in the U.S. need an ITIN. This category includes individuals who:
- Receive scholarships, fellowships, or grants that are taxable in the U.S.
- Are beneficiaries of estates or trusts that generate U.S. taxable income.
- Are participants in various tax treaty agreements that necessitate reporting to the IRS.
Dependents or Spouses of U.S. Citizens or Resident Aliens
Dependents and spouses of U.S. citizens or resident aliens may also need an ITIN for tax purposes. This includes:
- Spouses of U.S. citizens or resident aliens who file joint tax returns and are not eligible for an SSN.
- Dependents of U.S. citizens or resident aliens who are claimed on tax returns and are not eligible for an SSN.
- Nonresident alien spouses who elect to file joint tax returns with their U.S. citizen or resident alien spouse.
How to apply for an ITIN number
Applying for an Individual Taxpayer Identification Number (ITIN) involves understanding the eligibility requirements, gathering the necessary documents, and following the application process as outlined by the Internal Revenue Service (IRS).
Here’s a detailed guide:
Eligibility Requirements
To be eligible for an ITIN, you must:
- Be required to file a U.S. federal tax return or be included on another person’s tax return (such as a dependent or spouse).
- Not be eligible for a Social Security Number (SSN). This typically includes nonresident aliens, resident aliens, and their dependents or spouses who are required to file a U.S. tax return.
Required Documents for ITIN Application
When applying for an ITIN, you will need to provide documentation to prove both your foreign status and your identity. Here are the key documents required:
- Proof of Identity and Foreign Status:
- Valid passport (the only document that serves as both proof of identity and foreign status).
- If a passport is not available, you can provide a combination of two or more of the following documents:
- National identification card (showing photo, name, current address, date of birth, and expiration date).
- U.S. or foreign driver’s license.
- Birth certificate (required for dependents under 18 if a passport is not provided).
- State identification card.
- Foreign voter’s registration card.
- Visa issued by the U.S. Department of State.
- U.S. Citizenship and Immigration Services (USCIS) photo identification.
- Medical records (dependents only, under 6 years old).
- School records (dependents only, under 14 years old, under 18 years old if a student).
- Tax Return:
A completed and signed federal tax return must be attached to your ITIN application unless you qualify for an exception.
Application Process
1. Complete Form W-7:
Fill out IRS Form W-7, Application for IRS Individual Taxpayer Identification Number. Ensure all information is accurate and complete to avoid delays.
2. Attach the Tax Return:
Attach your completed and signed federal tax return to Form W-7 unless you meet an exception (e.g., claiming tax treaty benefits, being a dependent or spouse of a U.S. citizen or resident alien).
3. Submit Original Documents or Certified Copies:
You are required to submit original proof of identity (passport) and foreign status documents or certified copies issued by the relevant agency. The IRS does not accept photocopies. This means that if you decide to apply on your own, you must send your original passport or other identity documents to the IRS, which can be risky and inconvenient.
4. Mail the Application:
Mail the completed Form W-7, your tax return, and the required documents to the IRS:
Internal Revenue Service
ITIN Operation
P.O. Box 149342
Austin, TX 78714-9342
USA
5. Use an IRS-authorized Acceptance Agent:
To avoid the need to mail your original passport or identity documents, consider using an IRS-authorized Certifying Acceptance Agent (CAA). A CAA can verify your documents in person and certify the copies, which means you do not need to send your original documents to the IRS. This provides a safer and more convenient option for many applicants. Acceptance Agents play a crucial role in ensuring that your application is correctly prepared and submitted, reducing the risk of errors and delays.
6. Processing Time:
The IRS typically processes ITIN applications within 8 weeks. However, during peak periods, or if there are issues with your application, such as incomplete information or the need for additional documentation, processing times may be longer.
What is an SSN?
A Social Security Number (SSN) is a nine-digit number issued by the U.S. Social Security Administration (SSA) to U.S. citizens, permanent residents, and certain temporary residents.
It is formatted as XXX-XX-XXXX and serves as a primary means of identifying individuals within the United States.
Purpose of Social Security Number (SSN)
The SSN was initially created in 1936 for the purpose of tracking individuals’ earnings and determining Social Security benefits. Over time, its use has expanded, and it is now a critical identifier for various functions, including:
- Employment: Employers use SSNs to report employees' earnings to the IRS and the SSA. It ensures that individuals' contributions to Social Security and Medicare are properly recorded and that they receive the benefits to which they are entitled.
- Tax Reporting: The SSN is used for filing federal and state tax returns. It serves as an identifier for individuals when reporting their income and paying taxes.
- Government Benefits: The SSN is required to apply for and receive various government benefits, including Social Security retirement, disability, and survivor benefits, as well as Medicare and Medicaid.
- Financial Transactions: Financial institutions use SSNs to report interest, dividends, and other types of income to the IRS. It is also used for opening bank accounts, applying for loans, and obtaining credit cards.
- Identity Verification: The SSN is used as a key identifier in various contexts to verify an individual's identity, including applying for a driver's license, enrolling in school, and obtaining health insurance.
The SSN is a crucial element of an individual’s identity in the U.S., playing a significant role in employment, taxation, and access to various services and benefits. Proper handling and protection of the SSN are essential to prevent identity theft and fraud.
Differences between ITIN and SSN
Understanding the differences between an Individual Taxpayer Identification Number (ITIN) and a Social Security Number (SSN) is crucial for non-U.S. residents and entrepreneurs planning to engage in business or tax-related activities in the United States.
Both numbers serve distinct purposes and have different eligibility requirements and uses. Here's a detailed comparison to help clarify these differences:
| Criteria |
ITIN (Individual Taxpayer Identification Number) |
SSN (Social Security Number) |
| Purpose |
Tax processing |
Employment tracking, tax reporting, government benefits, and identity verification |
| Usage |
Filing tax returns, paying taxes, claiming tax benefits, opening bank accounts, applying for loans |
Employment, tax reporting, receiving government benefits, financial transactions, identity verification |
| Eligibility Requirements |
Individuals not eligible for an SSN, including nonresident aliens, resident aliens, their spouses, and dependents |
U.S. citizens, permanent residents, and certain temporary residents authorized to work in the U.S. |
| Work Authorization |
No |
Yes |
| Access to Social Security Benefits |
No |
Yes |
| Required Documents |
Proof of identity and foreign status, completed tax return |
Proof of age, identity, and work authorization (e.g., U.S. birth certificate, passport, green card, EAD) |
| Application Process |
Submit Form W-7 with required documents to IRS |
Submit Form SS-5 with required documents to SSA |
| Issuing Agency |
Internal Revenue Service (IRS) |
Social Security Administration (SSA) |
| Format |
Nine-digit number starting with "9" |
Nine-digit number formatted as XXX-XX-XXXX |
Purpose and Usage
ITIN (Individual Taxpayer Identification Number):
- Purpose: Primarily used for tax processing purposes. It allows individuals who are not eligible for a Social Security Number (SSN) to comply with U.S. tax laws.
- Usage: ITINs are used to file tax returns, pay taxes, and claim tax benefits. They are also used for opening bank accounts and applying for loans, but they do not provide eligibility for Social Security benefits or work authorization in the U.S.
SSN (Social Security Number):
- Purpose: Initially created to track individuals' earnings and determine Social Security benefits. Now, it is a primary identifier for various governmental and financial purposes.
- Usage: SSNs are used for employment, tax reporting, receiving government benefits, financial transactions, and identity verification. They enable individuals to access Social Security benefits and work legally in the U.S.
Eligibility Requirements
ITIN:
- Individuals who are not eligible for an SSN but have tax reporting or filing obligations with the IRS.
- This includes nonresident aliens, resident aliens (based on the number of days present in the U.S.), their spouses, and dependents.
- ITINs are issued regardless of immigration status because both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code.
SSN:
- U.S. citizens, permanent residents (green card holders), and certain temporary residents who are authorized to work in the U.S.
- To obtain an SSN, individuals must have authorization to work from the Department of Homeland Security (DHS) and meet specific eligibility requirements set by the Social Security Administration (SSA).
Obtaining an SSN
- Eligibility Check:
- Ensure you are eligible to obtain an SSN. Generally, U.S. citizens, lawful permanent residents, and certain non-immigrant visa holders authorized to work in the U.S. qualify.
- Application Process:
- Form SS-5: Complete the SS-5 application form, which is available on the SSA website or at any SSA office.
- Required Documents: Provide original documents or certified copies from the issuing agency to prove your age, identity, and work authorization (if applicable). Common documents include:
- U.S. birth certificate or U.S. passport (for U.S. citizens).
- Permanent resident card (green card) for lawful permanent residents.
- Work permit or employment authorization document (EAD) for non-citizens with work authorization.
- Foreign birth certificate and passport for certain non-citizen categories.
- Submit the Application: Submit the completed Form SS-5 along with the required documents to your local SSA office. Applications can be submitted in person or by mail, but in-person visits are often recommended for quicker processing and verification.
- Processing Time: Once the application is submitted, the SSA typically processes it within two weeks. The SSN card will be mailed to the applicant's address.
Conclusion
Navigating the complexities of ITIN numbers and SSNs is essential for non-U.S. residents, digital nomads, and entrepreneurs engaging in U.S. business and tax activities.
Understanding the differences between ITIN number vs SSN helps ensure compliance with U.S. tax laws and optimizes your ability to access financial services and benefits.
While an ITIN allows those ineligibles for an SSN to fulfill their tax obligations and partake in certain financial activities, an SSN offers broader utility, including work authorization and access to government benefits.
By assessing your specific needs and eligibility, you can determine which identification number best suits your circumstances, ensuring you make informed decisions and maintain compliance with U.S. regulations.
Frequently Asked Questions (FAQs)
Is it better to use ITIN or SSN?
It depends on your specific circumstances and eligibility. An SSN is generally better if you are eligible for one because it provides broader utility, including work authorization, access to government benefits, and easier engagement in financial transactions. An ITIN, on the other hand, is suitable for individuals who are not eligible for an SSN but still need to comply with U.S. tax laws and engage in certain financial activities.
I'm a non-U.S. resident LLC owner. Which is better for me, ITIN or SSN?
As a non-U.S. resident LLC owner, if you are not eligible for a Social Security Number (SSN), you will need an Individual Taxpayer Identification Number (ITIN) to fulfill your tax obligations in the U.S. An ITIN will allow you to file tax returns, pay taxes, and engage in certain financial activities related to your LLC. If you are eligible for an SSN, it would be preferable as it provides broader benefits, including work authorization, access to government benefits, and easier financial transactions. However, for most non-U.S. residents who are ineligible for an SSN, an ITIN is sufficient to meet tax requirements and manage their LLC's tax-related activities.
Can I work legally with an ITIN?
No, an ITIN does not authorize you to work in the United States. It is solely for tax processing purposes and allows individuals to file tax returns and pay taxes. If you need to work in the U.S., you must obtain a Social Security Number (SSN) or an Employment Authorization Document (EAD) from the Department of Homeland Security.
Who is eligible for an ITIN number?
Individuals who are not eligible for a Social Security Number (SSN) but have tax reporting or filing obligations with the IRS are eligible for an ITIN. This includes nonresident aliens, resident aliens, their spouses, and dependents who need to file U.S. tax returns or claim tax treaty benefits.
What is the ITIN number good for?
An ITIN is used for several purposes, including:
- Filing U.S. federal tax returns and paying taxes.
- Claiming tax benefits and treaty exemptions.
- Opening bank accounts and applying for loans (in some cases).
- Fulfilling tax reporting requirements for certain financial transactions.
- Supporting dependents or spouses in tax returns of U.S. citizens or resident aliens.
Need Help Setting up your US Company?
StartFleet helps you with your US Company formation. Apart from helping you to register a US company we offer a lot more:
- LLC and Corporation formation in Wyoming, Delaware, Florida and all other US States
- Over $500,000 perks from our partners
- US Business Bank Accounts Opening
- Expedited EIN Application
- Stripe/PayPal application consultation
- Shopify and Amazon FBA setup consultation
- Customized Website Policies for your website
