What is ITIN and why you should get it for your Non-Citizen Spouse
Ines Zemelman, EAAug-10-2016
Individual Tax Identification Number (ITIN) is a substitute for the Social Security number issued by the IRS to non-US individuals (not business entities).
Getting ITIN may be required by the IRS or may be requested by the individual for personal reasons.
We will analyze various situations to see how having an ITIN may affect US tax. In most cases having ITIN improves the tax position, occasionally it makes it worse, and often there is no effect.
In the interest of brevity this article will assume that the husband is a US citizen and the wife is a non-US citizen.
1. ITIN for non-resident alien spouse who elected to file jointly with the U.S. spouse and be treated as a US resident for tax purposes (election under IRC § 6013(g).
This is the most common reason for ITIN request. Such election allows the U.S. spouse to use the most beneficial filing status, Married Filing Jointly. The non-resident spouse will be required to report her worldwide income, however she will be entitled to her own exclusion of earnings up to $100K, and foreign tax paid on the non-resident spouse income will be combined with tax paid by the U.S. spouse and yield higher foreign tax credit.
This election, once made, can be revoked at any time. However, after the revocation the U.S. taxpayer will not be able to make the election to file jointly again. Even if he were to divorce and then remarry another non-resident alien spouse.
Non-resident alien spouse making such election IS NOT required to report her individual non-US financial accounts on FBAR. However, if the U.S. spouse meets the FATCA filing threshold, then foreign assets of the non-resident spouse must be included to joint form 8938.
2. ITIN for dependent children. If your child qualifies for a Social Security number through U.S. parents, then they cannot apply for ITIN.
If your child does not qualify for the U.S. Social Security number, you may request ITIN for them in anticipation of claiming them as your dependents, taking personal exemptions for the children and other benefits, such as child credit, dependent care benefits or higher education credits.
Be aware that having ITIN is not sufficient factor to claim children as your dependents and any other benefits. Children with a Social Security number qualify as dependents regardless of where they live. However, children with an ITIN have to meet the Substantial Presence Test in order to be claimed as dependents on parent or guardian return.
There are exceptions for children who are citizens of Canada or Mexico. They do not need to meet the Substantial Presence test and can be claimed as dependents under ITIN even if they permanently live with their parents outside of the U.S.
3. ITIN for Nonresident alien to claim tax treaty benefit. Residents of the country that has Tax Treaty with the U.S. need ITIN in order to request reduced tax withholding rate on income from U.S. sources.
Certain types of income do not require filing U.S. tax return (i.e., Survivor Benefits paid to the non-resident spouse of the deceased U.S. citizen). However, if treaty benefits are not claimed, default withholding rate would be 30%. Tax Treaty may reduce withholding rate to 15% or even make it tax-free in some cases. But you must claim Treaty benefit to obtain it.
Obtaining ITIN is just the first step. To claim Treaty Benefits, you should file form W8-BEN. For certain treaty benefits it is sufficient to provide your foreign tax identification number. For other treaty benefits you must obtain ITIN. To apply for an ITIN, file Form W-7 with the IRS. It usually takes 4-6 weeks to get an ITIN for this reason. Whereas processing of ITIN application submitted for other reasons may take up to 9 months.
4. ITIN for Nonresident alien filing U.S. tax return. Non-resident aliens with income from U.S. sources need ITIN to file the U.S. tax return.
If a Nonresident alien with income from U.S. sources meets the Substantial Presence test then he should file U.S. resident tax return (form 1040).
If a Nonresident alien with income from U.S. sources does not meet Substantial Presence test he should file U.S. non-resident tax return (form 1040NR).
For any type of income tax return you would need the ITIN. Application for ITIN (form W-7) should be submitted along with the tax return to the IRS ITIN Processing center. Box for U.S. Tax Identification Number (Social Security or ITIN) will read APPLIED FOR.
If you have an old Social Security number obtained while you were a student or lived in the U.S. long time ago, you may continue using this number and do not need to apply for ITIN.
However, if you have an old ITIN that was not used for 5 years or longer - most likely you need to request the new ITIN.
Under the policy announced in 2014 the IRS will deactivate an ITIN that has not been used on at least one tax return in the past five years.
- ITIN for Nonresident alien spouse who does not elect to file jointly and be treated as U.S. tax resident.
This is the least known benefit one can get from ITIN - provided that all application processing rules are followed.
Non-resident alien spouse may request ITIN number and NOT TO FILE JOINTLY with the U.S. spouse. The non-resident spouse does not have to disclose her income on tax return and foreign assets on form 8938. The only purpose of ITIN is to enable personal deduction for the spouse. The spouse is not a dependent. However, if she has an ITIN then the U.S. filer can take personal exemption for non-resident spouse and deduct $4K from his own taxable income.
This option is available to expats with any income level provided that the non-resident spouse does not have income from U.S. sources. Her foreign income does not count.
To make this plan work, tax return must show words APPLIED FOR in lieu of the Social Security number of the spouse
- Form w-7 (Application for ITIN number) must be completed with option (e)Spouse of U.S. citizen/resident alien
Tax return with form W-7 and with the certified copy of the non-resident spouse should be mailed to
- Internal Revenue Service
- ITIN Operation
- P.O. Box 149342
- Austin, TX 78714-9342