In the United States, taxes are quite intimidating, especially in case you are inexperienced or are taking on the reins of a financial responsibility. One of the most significant elements of this process is taking a proper tax identification number. What is a tax identification number and why does it seem that much?
Here is a simple, conversational breakdown of it, so that it makes sense.
What Is a Tax Identification Number?
A tax identification number (TIN) is essentially your unique code for interacting with the IRS. Just imagine it is similar to an ID card but in tax form. This number is used by the IRS to monitor your tax returns, payments as well as all other fiscal transactions. You can never file appropriately, collect benefits or even a tax refund without the right number.
This is where it becomes a bit confusing though, not all of them use the same kind of TIN. Depending on your situation, you might need a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). That is where most taxpayers, particularly immigrants, non-citizens find themselves asking questions.
Why Do These Numbers Matter?
You can just imagine how cumbersome it would be to open a bank account or to secure a job without an ID. Sounds impossible, right? The same goes for taxes. The government makes sure you are meeting your taxes appropriately and the benefits you receive through your tax identification number. It’s not just about compliance, it’s also about protection. When you have the correct TIN, the record of your earnings, contributions and refunds is under yours.
ITIN Vs SSN: What’s The Difference?
Here’s where things get interesting. The question many people pose is: which application should I use, that is, ITIN or SSN? To clear things up, let’s look at the basics of itin vs ssn.
- Social Security Number (SSN): This is issued to U.S. citizens, permanent residents, and certain non-citizens authorized to work. When you work in the U.S, your employer requires your SSN so he can report wages to the IRS and Social Security Administration.
- Individual Taxpayer Identification Number (ITIN): This is specifically for people who are not eligible for an SSN but still need to file taxes. An example would be nonresident aliens, foreign investors, or some people dependent on U.S residents who are in need of an ITIN. It enables them to respect even the U.S tax laws without the work authorization.
They are similar in one sense, both of them are concerned with tax reporting, yet, intended to operate over different groups of people.
Who Needs an ITIN?
Do you have a question on whether you should have an ITIN? You should question yourself: “Do I need to pay U.S. tax and do NOT qualify to have an SSN?” In the case of yes, then you should probably get an ITIN. This includes:
- Nonresident aliens who must file U.S. tax returns.
- Dependents or spouses of U.S. citizens or residents.
- Foreign investors earning income in the U.S.
- International students who are not able to obtain SSN but have to report taxable scholarships or stipends.
It is a device that is aimed to ensure the system is equitable to all the individuals who are required to finance a number of responsibilities in the U.S.
How to Apply for an ITIN or SSN?
The great question is how do you get one of these numbers?
- Applying for an SSN: Typically, you fill out Form SS-5 through the Social Security Administration (SSA). You will be required to produce identity, work permission and immigration documents.
- Apply for ITIN: This is accomplished by use of IRS form W-7. You will also be required to present documents of identification such as your passport as well as your tax return. This might require a few weeks, hence planning is very essential.
Common Misconceptions
Lots of people think that ITIN is a path to a work authorization or legal status. That’s a myth. It is only an ITIN so it is legal to pay taxes but that does not mean that you can work in the U.S., or receive a social security benefit.
On the other hand, SSN goes hand in hand with job, entitlements and pension costs. So, when it comes to it in vs ssn, the key takeaway is that both are vital. Confusing the two may cause serious problems with your tax filing and therefore you should know whether it is one or the other that concerns you.
Final Thoughts
Having said that, tax identification numbers form the spine of the U.S tax system. By getting these numbers whether as a U.S citizen with SSN or international resident with ITIN, you are guaranteed to be identified in the system and can follow up your monetary obligations.
ITIN and SSN serve very different groups of people, knowing which one you should have besides making sure you are playing within parameters also ensures that correct path is taken to get a refund, benefits and easing of mind.
So pick the one that still fits you best and in case you do not feel you can, consult a tax professional. Why complicate tax time when you do not have to, after all?
