A U.S. ITIN (Individual Taxpayer Identification Number) is required by Canadians and other foreigners who do not have U.S. Social Security Numbers (SSNs) to file their annual U.S. income tax return to report any U.S. sourced income, such as rental income and to report gains/losses from the sale of property.
It is necessary for foreigners, including Canadians to have an ITIN if dealing with U.S. taxes. At AG Tax, we have found that prospective clients are often not aware of the ITIN application process. In this article, we have summarized the importance of an ITIN and the application process for non-resident/foreign U.S. taxpayers. It will cover information pertaining to the Individual Taxpayer Identification Number (ITIN). It is always beneficial to consult a cross-border tax professional prior to obtaining an ITIN.
What is a Individual Taxpayer Identification Number (ITIN)?
The Individual Taxpayer Identification Number (ITIN) is a tax processing number, issued by the U.S. Internal Revenue Service (IRS) to individuals who do not qualify for a social security number, so that non-residents taxpayers can comply with U.S. tax laws.
Who Should Apply for an ITIN?
An ITIN can be applied for by a foreign U.S. taxpayer who is not eligible for a Social Security number and must provide a taxpayer identification number. Examples include:
- An individual who is required to file the U.S. income tax return;
- Dependents of an individual that want to claim the dependents and qualify for eligible tax credits and deductions while filing a U.S. tax return;
- Individuals subject to certain third party withholding tax;
- A nonresident alien individual claiming reduced withholding under an applicable income tax treaty.
An ITIN will also be required when selling a U.S. real property in the following situations:
- When withholding taxes are being paid with the filing of Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests, and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests
- If the taxpayers wishes to request reduced withholding while filing Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests
- When filing the income tax return required under Foreign Investment in Real Property Tax Act (FIRPTA) when disposing U.S. property
ITIN Application Process
Foreign U.S. taxpayers need to file Form W-7, along with original and notarized copies of identity and foreign status documents. This includes:a passport for foreigners living within the United States. However, individuals living outside the U.S., for example Canadians would need certified copies of their passport from the Canadian passport office or reach out to an IRS Certifying Acceptance .
The Form W7 must also include proof of the reason the taxpayer is requesting the ITIN. For example:
- Taxpayers are required to file an income tax return, the Form W7 can be attached to their annual income tax return
- The taxpayer needs the number to report the disposition of U.S. real property, a copy of the Forms 8288A or 8288B (discussed above) must be attached to the application
- If the taxpayer is subject to withholding, a letter from the payer such as the bank, school paying scholarships, pension administrator, or employer must be attached to the Form W-7
- If the taxpayer is a partner in a partnership, a copy of the partnership documents are required.
Applying from A Foreign Country
You can apply for an ITIN by bringing your completed forms and documentation to any IRS Taxpayer Assistance Center in the United States or IRS office abroad. If an individual is unable to apply in person, you can also apply for an ITIN from a foreign country. For this, the individual needs to complete Form W-7 and send to the IRS by mail along with original and certified copies of the documents validating the foreign status of the taxpayer. Passports can be recommended as it suffices both foreign status and identity confirmation. For certified copies, it is best to get the copy certified by the issuing government agency, or employees of the U.S. State Department located in U.S. embassies and consulates abroad. The individual will also need to attach the documentation showing the reason for applying for the ITIN. (discussed above).
Acceptance Agent Program
An Acceptance Agent is an individual, business or organization, which could be a college, financial institution or accounting firm. The IRS authorizes the Acceptance Agencies to assist individuals in obtaining ITIN’s. Taxpayers can easily reach out to them if it is not possible to reach an IRS office. To qualify these agents complete mandatory training to ensure they are fully qualified to assist taxpayers.
The Acceptance Agents carry out the initial steps of the application process, such as verifying if the clients are eligible for SSN and if not then preparing the application for ITIN by filing Form W-7 and attaching the required documents after reviewing them for accuracy and authenticity, and then forwarding them to the IRS for processing.
Furthermore, if a nonresident taxpayer is required to provide a taxpayer identification number and does not qualify for SSN they will would need to apply for an ITIN. It is recommended that Canadian taxpayers or other nationals who think that they could be subject to U.S. taxes due to certain U.S. sourced passive income, such as: rents, dividends, interest, etc. should consult a cross-border tax professional regarding their U.S. tax liability and filing requirements.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. We are a team of highly experienced tax professionals with extensive knowledge of U.S. and Canadian cross-border compliance as well as U.S. and Canadian tax laws.
Furthermore, as a full service accounting firm, AG Tax is dedicated to assist you with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement Planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
