Application and Functions of the Individual Taxpayer Identification Number (ITIN)

Overview

The Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service (IRS). It is specifically designed for individuals who are required to have a U.S. taxpayer identification number but are ineligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA).

The issuance of an ITIN is independent of immigration status; both resident and non-resident aliens can file taxes in the United States in accordance with U.S. tax laws. However, to obtain an ITIN, the applicant must meet specific tax filing eligibility requirements. In my view, any individual who is ineligible for an SSN—regardless of how they entered the U.S.—should possess an ITIN.

Scope and Beneficiaries

An ITIN is used solely for federal and state tax reporting. Holding an ITIN does not impact an individual’s application for immigrant or non-immigrant visas. Typically, there are two primary groups of people who need an ITIN to access tax-related benefits:

  • Category 1: Non-U.S. Resident Tax Filers This includes non-U.S. residents who do not have an SSN but earn income within the U.S., such as business income, rental income, capital gains, or other investment returns. If this income is not covered by a tax exemption treaty between the U.S. and the individual’s home country, it must be reported to the IRS. For these individuals, an ITIN is a mandatory requirement for tax filing.
  • Category 2: Individuals Seeking Tax Treaty Benefits or Meeting Withholding Requirements This group applies for an ITIN to claim tax benefits under international treaties or to satisfy U.S. withholding tax obligations. For instance:
    • E-commerce & Publishing: Individuals operating online stores or publishing e-books in the U.S. may face high withholding rates. By obtaining an ITIN, they can benefit from preferential tax rates on royalties (e.g., under the China-U.S. tax treaty).
    • Partnerships: Non-U.S. residents forming a partnership in the U.S. must provide a Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc.) as required by the IRS, which necessitates an ITIN.
    • Real Estate: When a non-U.S. resident sells property in the U.S., the IRS typically requires a 10% withholding of the sales price. An ITIN is a prerequisite for completing the transaction and processing the withholding.

Primary Uses of an ITIN

An ITIN is essential for several key financial and administrative activities:

  • Licensing: Meeting the identification requirements for various professional and business license applications.
  • Tax Filing: Filing federal and state tax returns to claim eligible tax refunds.
  • Banking: Opening personal bank accounts and applying for credit cards.
  • Telecommunications: Applying for mobile phone services and contracts.
  • Financing: Applying for real estate mortgages and loans.
  • Business Operations: Registering a company and allocating corporate income to shareholders for tax reporting purposes.