When it comes to taxes, there are many acronyms that get bandied about. You need to send out W-2s. Remember you need to be ACA compliant. Have you filed and remitted your withholdings to the IRS?
It can get confusing quickly. One common area of confusion is social security numbers (SSNs) and international taxpayer identification numbers (ITINs). These numbers are similar in some ways, but vastly different in others. At first glance, you may not see much difference between the two of them. You may even think they’re interchangeable.
What is the difference between ITINs and SSNs?
The social security number is more important and more common, so it makes sense to start with a brief explanation. The SSN is issued by the federal government, and it’s used to identify individual American citizens.
The SSN is used as taxpayer identification, which means your employees need to provide it when they file with the IRS. You’ll need to request it from them and verify it’s correct when you need to withhold taxes for the IRS.
The social security number does more than merely file taxes. As the name implies, the number enrolls an American citizen in the federal social security program. This number entitles them to a number of benefits, such as old age pensions and Medicare/Medicaid.
Now that you know what an SSN is, you’re probably wondering what an ITIN is. The acronym stands for “individual taxpayer identification number.” This number is commonly issued to identify foreign persons who are doing business in the US. It’s issued by the IRS and is used to file taxes.
The ITIN is important for foreign persons doing business in the US since it allows them to register with the IRS. It commonly allows them to claim treaty benefits to avoid double-taxation in the US and their home country. It also allows them to claim any withholdings an employer took from them and remitted to the IRS.
ITINs Are Not SSNs
As should be clear from the definitions provided, ITINs are not SSNs. The ITIN doesn’t provide access to social security programs. A person with an ITIN cannot access an old age pension or Medicare/Medicaid in the US.
At a certain point, ITINs are insufficient as well. For example, if you’ve hired a foreign person to work for you and brought them in as an employee on a visa, the ITIN isn’t going to cut it. They need an SSN.
Why? The ITIN allows the person to identify themselves as a foreign person to the IRS and claim an exemption from US taxes. Someone working for you fulltime on a visa isn’t exempt from these taxes. Further, the ITIN can’t provide them with access to the social programs you’re collecting and remitting for, such as the pension. You’ll take this money and remit it to the IRS, and the person will never see the benefit of it.
When Is an ITIN Acceptable?
ITINs are useful for contract vendors who operate outside of the US. If the vendor you work with is located in Canada or the UK or anywhere else, and they do not set foot in the United States to do the work, then they can use an ITIN. They’ll also need to file a W-8 BEN. 1099 contractors have different arrangements.
Outside of this, the ITIN isn’t acceptable for filing your taxes. You’ll need to provide SSNs for all of your employees. If they can only offer an ITIN, you’ll need to have them apply for an SSN.
If you have questions or concerns about ITINs or SSNs, talk to your payroll provider. If you have any questions about your taxes, don’t hesitate to get in touch. Let the experts help you sort things out so you can file correctly the first time around.