What Is the Purpose of an Individual Tax Identification Number?

Employees in the United States are required to comply with tax laws. However, if they don’t have social security numbers, a commonly used form of identification in the United States when processing taxes, then they need to apply for an Individual Tax Identification Number (ITIN). If your business is getting questions from employees about ITINs, here’s what you can share with them.

What Is an ITIN?

An Individual Tax Identification Number (ITIN) is issued by the Internal Revenue Service (IRS) to individuals who do not have nor are eligible to get a social security number. An ITIN also is issued regardless of immigration status.

Is an ITIN Different Than a Social Security Number?

Yes, an ITIN and a social security number (SSN) are not interchangeable. First, an ITIN’s sole purpose is for federal tax reporting. It does not authorize an individual to work in the United States nor make an employee eligible for Social Security benefits.

A social security number, on the other hand, is assigned mainly to U.S. citizens and authorized residents. It helps employers report their employees’ income to the IRS as well as their Social Security wages to the Social Security Administration, so when an individual becomes eligible their Social Security benefits can be determined.

An employer also uses an individual’s social security number to report state income taxes in states where that is applicable, while an individual can use the SSN to open a bank account, get credit or private insurance, and even when buying a home, to name a few.

One similarity between ITINs and SSNs is that each has nine numbers in a three-two-four (xxx-xx-xxxx) format, but an Individual Tax Identification Number will always start with a 9.

How To Apply for an Individual Tax Identification Number (ITIN)

If an employee has to apply for an ITIN, they should fill out Form W-7 (Application for IRS Individual Taxpayer Identification Number). However, no one should have a social security number and an ITIN.

Anyone who has an ITIN should also be aware that the IRS established a rule that ITINs will expire if not used on federal income tax returns for five consecutive years.