IRS Changes ITIN Procedure


The other week I wrote about changes the IRS has recently put into place that makes it harder for you to get a Tax ID number for your business. Now, the Service has made changes to how non-US residents can get an individual taxpayer identification number, also called an ITIN. And if you’re looking to come to the US to go to school, or if you are looking to invest in US-based real estate, you need to know how this affects you.

When you earn income in the United States as a non-resident, the government here expects that you will pay some tax on that money. To make sure that happens, the government nominates the person or business paying as a ‘withholding agent’, and makes that person or business responsible for holding back a portion of your income. The holdback amount is typically 30% but it can be higher. The withholding agent isn’t going to let it slide, either, because the IRS makes them responsible for paying it, in the event that you don’t.

As a non-resident, you can either leave it at that, or, if you want, you can voluntarily enter the US tax system, by filing a non-resident tax return. The advantage is that if you come into the US tax system you’ll get a lower tax rate, and you won’t be stuck with that mandatory 30% withholding.

If you do choose to come into the US system you’ll need some kind of a number that identifies you to the US tax authorities. If you’re a US citizen, that is a Social Security Number. Most non-citizens, who aren’t eligible for Social Security Numbers, apply for ITINs. And that’s where the fun starts.

The biggest issue the IRS has with issuing you an ITIN is making sure that you are who you say you are.

Up until recently, if you were in the United States, either going to school or in the country temporarily, looking at real estate, it was pretty simple. You got a copy of your passport notarized by a US attorney, and sent that to the IRS, along with your application.

That shortcut has just changed, though. Effective immediately, the IRS is now demanding that everyone who wants an ITIN must submit a passport (or other qualifying documents) that has been certified by their home government agency that issued the passport.

If you’re in the United States, you may be able to get this taken care of at your closest Embassy or Consulate office in the US. If you’re outside the country, you’ll have to go to your passport office to get your passport certified, unless you live in a country that is a signer to a part of the Hague Convention that deals with standardizing document signing procedures (you can read more about it here). Apostilling is another method of certifying documents. A notary who can apostille documents is essentially a “super-notary”, who is permitted to take the government’s place and certify your documents. If you’re in a Hague country, it’s usually cheaper to go the apostille route than back to your passport office.

On the face of it, yes, it does sound like a lot of work. But if you’re going to save 20% or more on your US-based taxes, then it’s going to be worth it in the long run.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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