Is It Safe for Illegal Immigrants to Pay Income Tax?

If you’re one of the more than ten million illegal immigrants currently believed to be living in the United States, there are many aspects of daily life that can be more than a little worrisome. More importantly, there are many opportunities that you may be denied due to your immigration status. There are, however, any responsibilities that you simply cannot avoid. For example, you are still expected to obey all local, state, and federal laws. And yes, you are still expected to pay taxes for any income you earn while in the country.

That last requirement can be a scary proposition for many recent arrivals, as they are rightly concerned that authorities will learn of their presence and initiate deportation proceedings. That fear is understandable, but unwarranted in this case. The fact is that even illegal immigrants are expected to pay taxes just as they would be required to do were they here legally. The good news is that you can do so without fear that your tax filing could be used to send you back to your home country.

The reason for that is simple: the IRS has as its main mission the tracking of income and collection of taxes. Because they had a problem managing various types of income earned in the United States by people who lacked Social Security numbers, the agency initiated the Individual Taxpayer Identification Number program almost two decades ago. That is the number that must be obtained by anyone who is not eligible for a Social Security Number.

Now, you might be wondering whether your illegal status might bar you from obtaining an ITIN. Rest assured, it will not. As long as you can provide the proper documentation, the IRS will process and approved you for your own identifying number. More importantly, they do not share this information with the immigration authorities. Remember, the Internal Revenue Service’s only goal in this area is to ensure that they collect as much of the tax revenue due as possible!

So, on the one hand, you have a situation where failure to report your income and file taxes can result in criminal penalties. On the other hand, you have an agency that has gone out of its way to ensure that you can properly meet that tax-filing duty without fear of your illegal status being discovered by immigration authorities. Obviously, your choice should be clear: get your ITIN and be sure to file those taxes. The last thing you want is for the IRS to track you down and assess heavy fines or other penalties simply because you were afraid to file.

Finally, be sure to obtain ITINs for any non-citizen dependents so that you can also claim them when you file. Each dependent must have a Social Security Number or ITIN before you can legally claim them on your tax return. While you cannot receive the Child Tax Credit for dependents unless they are U.S. citizens or lawful residents, claiming them on your taxes can still reduce your overall tax burden.

Unused ITINs to Begin Expiring in 2016

With the New Year rapidly approaching, you can be sure of several things: 1) you’ll probably put on a few pounds over the holiday season; 2) there’ll be at least one or two NFL teams that will exceed even their most diehard fans’ expectations, and; 3) a new tax season will be here. Of the three, that last one should warrant some serious attention, especially if you’re one of the millions of people in the United States who’s been assigned an Individual Taxpayer Identification Number – more commonly known as the ITIN.

In accordance with changes announced in 2014, the Internal Revenue Service is scheduled to begin deactivating some ITINs next year. If you’re a current ITIN user who hasn’t heard about this new policy, then it’s something you definitely need to learn about. After all, if your ITIN is one of those that ends up being deactivated this next year, that could present you with some complications the next time you try to file a U.S. tax return.

There were a number of reasons for this policy change, including instances of tax fraud by illegal immigrants with ITINs and allegations that IRS supervisors were ordering employees to approve applications even when they appeared to be fraudulent. In addition to fraud, there is also the fact that only about five million of the twenty-one million ITINs provided to taxpayers in the last two decades are actually showing up on tax returns.

The IRS came to the conclusion that it could reduce the potential for fraud by phasing out those inactive ITINs, and will begin that process this next year. This stands in stark contrast to the 2013 policy change in which the IRS declared that all future ITINs would be automatically deactivated after five years.

That plan provided no real way to effectively track inactive numbers, since every number issued would have needed to be reissued twice each decade. The new plan ensures that the IRS can better monitor which numbers are being used and which are not, and simply remove the inactive numbers from circulation.

So what does that mean for you? Well, if you have an ITIN and have yet to file taxes, be sure to do so during this upcoming tax season. If you fail to do so, and your ITIN hasn’t appeared on a tax return for five consecutive years, you’re probably going to lose that number. And while you can certainly reapply for a new ITIN if you lose your current identifier, you’ll have to once again go through the tedious process of providing passports and other documents to meet the filing requirements.

You still have a number of months to go before you have to start worrying about tax filing season, but it’s never too early to start thinking about how you’ll manage the process. Just remember that you’ll need to use your ITIN if you want to ensure that you don’t lose it. You can find more information about these and other changes to the ITIN by checking the IRS website at irs.gov for updates.

The IRS Still Having Problems Authenticating ITIN Documents

If you’ve paid any attention at all to news about the IRS over the last several years, you’ve probably heard that the agency has had more than its share of difficulties with fraud and abuse. One issue that has been covered in some detail is the problem the IRS has had with people abusing the Individual Taxpayer Identification Number system. Recent news may be providing even more clues about why that system has been so riddled with fraud.

Just a few short years ago, the Inspector General charged with monitoring the tax agency responded to complaints from IRS personnel that claimed that they were being instructed to simply approve any ITIN applications that came in. After examining the evidence and the systems the IRS had in place to prevent fraud, the IG came to the conclusion that the taxpayers were losing billions of dollars due to abuse of the ITIN by illegal immigrants and others.

After another more recent audit, the IG’s office now thinks it understands at least part of the reason why the fraud detection systems at the IRS have been so porous. It turns out that the Agency lacks any real mechanisms for validating any of the documents they’re supposed to be relying on when approving these ID number requests. The IRS has no tools in place to verify these documents, and its personnel have no experience or requisite skills for doing it on their own.

As shocking as that might sound, it should come as no surprise. When the initial tax fraud by illegal immigrants was discovered a few years ago, one common complaint from the IRS personnel who were told to approve those foreign documents was that they had no one on staff who could actually read the languages used in the documents they were supposed to be verifying!

It’s all but incomprehensible to imagine that the agency charged with managing the country’s system of taxation would fail to realize that it cannot verify what it cannot understand. Even so, that appears to be the case. Whether through neglect or conscious design, the Internal Revenue System never made even the minimum effort required to give itself access to personnel with foreign language translation skills – and that failure has cost the U.S. taxpayers billions of dollars.

The Inspector General has issued recommendations to the agency to take steps to correct these mistakes. They include implementing processes that will enable them to compare foreign-issued documents with reference materials that can help them to better verify their authenticity, as well as training to assist employees in handling that verification process properly.

For its part, the IRS has deferred to the IG’s report, and claims that this is just another step in the agency’s ongoing internal review to better strengthen the ITIN program. The official line from the IRS now focuses on the fact that they stopped accepting notarized copies two years ago, and have required the original copies of all foreign-issued verification documents. Still, given the IG’s apparent skepticism of the agency’s competence in verifying such documents, is it not perhaps fair to wonder whether they would even know the difference between an “original” copy and a forgery?

The Benefits of an ITIN for Anyone without a Social Security Number

If you’re a nonresident alien living and working in the United States, you’re probably aware of your obligation to pay taxes. Unlike citizens and other permanent residents of the country, however, you may not be entitled to your own Social Security number. Instead, you can be issued an Individual Taxpayer Identification Number, otherwise known as an ITIN. The good news is that your ITIN is not only invaluable for meeting your tax obligations, but can provide a number of other key benefits as well!

First of all, this number is essential for individuals who are working and paying taxes in the United States without a Social Security number. The Internal Revenue Service requires an ITIN for taxpayers in your situation so that it can process your tax return, collect taxes owed, and return any refunds to which you might be entitled. In fact, that is precisely why this numbering system was designed.

Still, if you are living in the United States, you have other concerns to worry about as well. You need a place to live, transportation, and other costly items. If you are working to become a permanent legal resident, then you will eventually want to buy a home as well. That takes credit. The ITIN can help you there as well. The credit scoring companies make no distinction between the SSN and ITIN when it comes to both credit use reporting and credit scores. By having an Individual Taxpayer Identification Number, you ensure that you meet the minimum legal requirements for obtaining loans. Just as important, you ensure that your payments actually work to establish a positive credit score over time.

Of course, before you can get a loan from any financial institution, you first have to be eligible to use their banking products. Under federal law, that means that you have to be able to prove your identity, and that requires an identification number. The ITIN serves that purpose just as effectively as the Social Security number. That means that you at least meet the legal requirements for opening a savings or checking account, credit lines, and various loans.

And while you are not eligible to receive Social Security benefits, the taxes that you pay into that system are tracked so that there is a record of them over time. That helps to ensure that if you should become eligible for them at some point in the future then those previous payments will be counted when your benefits are calculated.

It is important to remember that there is one thing that the ITIN is not designed to do: it does not allow you to work in the United States if you are otherwise ineligible to do so. For those who are legally permitted to engage in employment within the U.S., however, it is an essential alternative to the Social Security number. More importantly, it can provide the type of benefits that you’ll need to maintain your quality of life while you’re in the country.

Not So Fast – That ITIN May Still Not be Enough to Get You That Loan

If you’re a legal resident or nonresident foreign national working in the United States and hoping to set down some roots and perhaps buy your home, it would seem that there would be few obstacles in your way. After all, even if you were not eligible for a Social Security Number when you arrived in the country, you were certainly issued an Individual Taxpayer Identification Number in its stead. That ITIN was necessary for you to be able to work, drive, and enjoy many of the other benefits associated with living in the U.S. In theory at least, it should also be enough to enable you to get a mortgage for that home you want to buy.

Not so fast! The fact is that your ITIN may not be as useful for securing a loan as you had previously been led to believe. In fact, it may actually put you at a disadvantage with certain lenders. Despite your legal status in the country, lenders may be more cautious about your loan simply due to the way in which ITINs are issued to illegal immigrants.

Here’s the problem: though the ITIN was initially designed as a way for the IRS to deal with the taxable income of those who were not able to obtain Social Security Numbers, the program has since grown far beyond its initial mandate. It now is managed in a way that makes little distinction between legal and illegal immigrants and aliens, and that has resulted in heightened caution in the financial industry.

Here’s the problem you might be facing: because the IRS doles out ITINs to virtually anyone who can produce the required documents – or forged facsimiles even – there are an unknown number of illegal aliens who possess these numbers. Even though the operating premise with regards to home mortgages and the ITIN has long been that the ITIN is just as valid as a Social Security Number when it comes to obtaining loans, that is not always turning out to be the case.

The fact is that illegal immigrants pose a special problem when it comes to income verification, credit history, and verifiable documentation. In some instances, these individuals rely on falsified documentation to obtain loans and other benefits. That fraudulent activity has now become associated with the ITIN in some lenders’ minds. And since they feel that they cannot always trust the documents that ITIN-holders are providing them, they are understandably reluctant to proceed with some loans.

Now, none of this should dissuade you from pursuing a mortgage or other loan. Indeed, if you are here legally and have access to verifiable documentation and the appropriate level of credit history, then you should be able to secure the financing you need at the same terms enjoyed by other residents. At the same time, however, you should be aware that there may be a little more added scrutiny than you might have expected.

Illegal Immigrants and the abuse of the ITIN

In recent years, one of the main concerns with the management of the Individual Taxpayer Identification Number system has been abuse and fraud by illegal immigrants. Indeed, just a few short years ago there was something of a scandal surrounding allegations that IRS officials were being told to process obviously fraudulent requests for ITINs. To counter that, the IRS has been pressured into implementing various changes to the system to ensure that the ITINs they issue are actually being used. Despite that, there seems to be little doubt that fraud continues to be a problem.

Part of the problem stems from the change in mission that the IRS engaged in with respect to these numbers. Most people are unaware that these numbers were created to deal with the Agency’s inability to properly account for roughly eighty billion dollars in investment income for nonresident aliens. The entire purpose was to provide those aliens with an identifying number that could be used to verify their identities on the income documents that they presented when filing taxes. That was almost two decades ago.

Since that time, the IRS went from providing these numbers to nonresident aliens to issuing them to resident aliens as well. That decision has been implemented without regard to whether those resident aliens are in the country legally or illegally, and has resulted in untold ITINs being issued to illegal immigrants over the last nineteen years.

Now this is where it gets tricky. Since anyone with an ITIN who files taxes is allowed to claim dependency exemptions just as any American citizen or other SSN holder could, there have been reports of illegal immigrants claiming and securing tax refunds by utilizing the Child Tax Credit features in the tax code. Aside from the fact that they are in the country illegally and thus not permitted to even work and earn income, that use of the dependent credit allowance would seem fair.

However, there are many who have not stopped with valid claims of dependents. Some have gone so far as to secure ITINs for their dependents that still reside outside of the United States – and then listed those dependents on their tax returns. That has enabled many of these illegal immigrants to obtain thousands of dollars in fraudulent refunds – and has been estimated to cost U.S. taxpayers billions of dollars each year.

Worse, the IRS has apparently known about the abuse for years, and taken few if any concrete steps to address it. Just two years ago, the Agency’s Inspector General reported that the IRS sent out a total of 2,706 refunds to one bank account – and all 2,706 were believed to be possible illegal immigrants. Other examples include situations in which the IRS issued more than 15,000 separate ITINS to one single address in Phoenix, AZ. A similar amount of separate ITINS were issue to one address in Texas.

There seems to be little argument about whether fraud is occurring. The question is: what can be done about it? Well, the IRS has new rules that place limits on the number of refunds that can be sent to any single bank account. That limit is now three. Whether these and other rule changes can help to reduce abuse of the ITIN system remains to be seen, but at least it’s a start.

How the ITIN Can Help Resident Aliens in the United States File Taxes

If you’re planning to come to the United States for a job, there are some things you need to know. As a non-permanent resident alien living and working in the United States, you’ll have many of the same responsibilities faced by permanent residents and citizens. Obviously, you have to follow all applicable laws, pay your bills, and generally be a productive member of your community. You also have a responsibility to pay taxes on the income you earn for your employment.

That sometimes comes as a bit of a surprise to many foreigners working in the United States, since most are aware that they are not eligible for Social Security numbers – the identifying numbers most commonly associated with the American system of taxation. Neither are those aliens eligible for the types of benefits that generally attach to those numbers. Well, the American system has a second identifying number system to accommodate those who don’t qualify for the SSN.

That number is the Individual Taxpayer Identification Number, and it exists for people in situations exactly like yours. That number is issued to every non-resident alien as well as some resident aliens. By having this number, you not only comply with legal reporting requirements, but also ensure that you’ll be able to file tax returns just like every other employed person in the country.

That’s important because chances are that you – like many citizens and residents – will be paying more into the tax system throughout the year than you are required to do by law. By filing your taxes, you’ll ensure that the government returns any overpayment to you. With your ITIN, you can also claim exemptions for your spouse, children, or other dependents. Of course, they’ll need to have their own ITIN or SSN as well.

Every worker in the United States is expected to file a tax return. The ITIN is your tax identity that enables you to fulfill that responsibility. Each year, you have to report all of your income, tips, interest earned, and any dividends. That includes income earned from sources outside the United States as well.

Keep in mind that there may be exceptions to the need for an ITIN. If you’re in the country on a valid work visa or have a green card, you should always begin by applying for a Social Security Number rather than an ITIN. If that is denied for any reason, you just submit that denial letter along with your ITIN application. And don’t worry, if you end up with an ITIN and then later become eligible for the SSN, the government will still count all your present earnings toward any future benefits due.

The one thing you absolutely cannot do is simply ignore your responsibility to follow all tax laws. When you work in the United States, the Internal Revenue Service fully expects all due taxes to be paid in a timely manner. By getting the right identifying number – whether it’s an SSN or an ITIN – you provide yourself with the unique taxpayer identity you need to file your tax returns and receive any refunds that you may be owed.

Don’t Wait Until You Reach the U.S. – Apply for Your ITIN Now!

If you’re overseas and waiting to come to the United States to work, chances are that you’re already aware that you’re going to be subject to American taxes once you’re in the country and actively earning money. Obviously, you’re going to want to ensure that you have everything in order so that you don’t face the type of delay that might interrupt your employment or otherwise complicate your life. While you could wait until you arrive in the United States and apply for your Individual Taxpayer Identification Number, why delay? The fact is that you can actually take care of that detail before you ever set foot on American soil.

You don’t have to be a U.S. resident to obtain the number, of course. The IRS has worked to streamline the process to make it as easy as possible for nonresidents as well. That should come as no surprise, since the agency has an interest in making sure that you’re able to pay any taxes you owe them without any serious obstacles impeding that payment process.

You can find IRS personnel to help you with your ITIN filing process overseas. These agency professionals can be found at various American embassies, including consulates in London, Beijing, and Paris. Their primary purpose there is to assist foreign nationals with the filing and processing of the form w7 documents needed to apply for the ITIN.

Naturally, there are other options if you don’t have easy access to embassy personnel in your country. If you go on the IRS website, you can find information about Certified Acceptance Agents who can help to vouch for you with the agency. It is also possible to send the proper documents via the postal system, but you will have to include certified copies of any documents that verify your identity.

Documents such as a national ID card or birth certificate, your foreign voter card, military ID, visa, or medical and school records can all be used to prove you are who you say you are. You could also send certified copies of your passport. To fulfill ITIN requirements, you need to send two of these documents, and one of the two must have a photo of you as well. The only exception is when you use your passport, since that alone is sufficient to meet the agency’s requirements.

By starting early with the application process, you can ensure that everything is ready for you when you finally leave to come to the United States. That way, you can begin work without having to worry about how you’ll get your taxes paid properly. That can help to make your transition period within the U.S. a lot less stressful than it might otherwise be.

The good news is that the IRS has created a simple process for obtaining the needed identification number, and there is plenty of help online and at U.S. embassies. So, even though you could simply take care of the ITIN filing process after you begin working in the States, there’s really no good reason to wait.

Confused About the Differences Between the ITIN and SSN?

For noncitizens working in the United States, the tax code and all of its requirements can sometimes be extremely confusing. Does that describe your situation? If so, you’re not alone! There are millions of foreign nationals working in the U.S., and each of them is in a situation similar to your own. You know you’ll have to pay taxes, but perhaps you’re just a little confused about what type of identifying number you need to do so. Well, there are only two main options available to you, so let’s take a look at them and how they differ from one another.

The Social Security Number, or SSN, is the main identifying number issued to every American citizen, as well as permanent residents and some temporary residents who are working in the United States for a time and need to be able to file their income taxes. If you’re a noncitizen who has received approval from the Department of Homeland Security, then you too may be able to receive one of these numbers.

The SSN is more than just an identifying number, however. It is the primary means by which the federal government can track a person’s earnings throughout life, and then determine what, if any, benefits he or she is entitled to upon retirement. It’s those benefits that make the SSN an attractive option for anyone who is moving to the United States with the intent to start a new life and become integrated into society.

But what if you’re not eligible for the Social Security Number? Well, you have another option: the Individual Taxpayer Identification Number. This identifying number is provided to those individuals who cannot receive SSNs, and can be used while you are working in the United States. For income reporting and tax filing purposes, it serves exactly the same function as the SSN. And, because the IRS issues these without respect to immigration status, it is the one identifying number that even illegal immigrants can obtain while in the country.

Here’s the thing, though: the ITIN may serve the same tax filing purpose, and can be used as an alternative to the SSN with employers, but it does not provide the exact same benefits that citizens and other legal residents can obtain with the Social Security Number. Someone who holds only an ITIN while working in the United States cannot ever collect Social Security benefits under the laws currently in place.

You can, however, use your ITIN to establish a credit history. And with the right documentation and credit score, you can eventually use your identifying number to seek a loan from a bank or other lender. So, it too can be far more valuable to you than just enabling you to file taxes.

In short, both the SSN and the ITIN are invaluable options for complying with federal tax laws and regulations. You can only have one, of course, so it is wise to check to see if you are eligible for the Social Security Number first. If not, then be sure to apply for your Individual Taxpayer Identification Number at your earliest opportunity to ensure that you have what you need to enjoy the benefits of life in the United States.

As a Foreign Student, Do You Need an ITIN?

For some time now, the number of international students in the United States has been growing at a fairly steady pace. Over the last couple of school years, foreign students in American universities have exceeded 850,000 scattered throughout the various graduate and undergraduate programs in the nation. That’s a whopping four percent of all U.S. college students, and represents almost ninety percent of all international students attending universities outside of their home countries. It’s also a seventy-two percent increase in the last fifteen years.

If you’re a foreign student attending university in the United States, there are many opportunities available to you. There are also some important obligations that may apply, depending upon your individual circumstances. One of those obligations might involve the need to obtain an Individual Taxpayer Identification Number. Yes, even if you are merely attending school in the United States, and are not working at all, you may still need an ITIN if you meet certain criteria.

That might not make sense given that most people consider the ITIN nothing more than an identifier provided so that those who are not eligible for Social Security numbers can still work and pay taxes. However, if you’re a foreign student in the United States and receiving grants, fellowship, or scholarship money, there is always the chance that some portion of that may qualify as taxable income. You may also need to obtain an ITIN if you have dependents that have come to the U.S. on J-2 or F-2 visas.

The reason why these scholarships, grants, and fellowships may trigger income tax questions has to do with their source. If they are coming from American sources, then they qualify as U.S. income – even though you’re not technically employed. This is true for both foreign students and foreign professors. You may not actually have taxable income when all is said and done, but you will want to file a tax return to ensure that you are in full compliance with your legal responsibilities.

As a general rule, you can obtain your ITIN either before you come to the United States, or wait until you are here. If you’re receiving this sort of income from an American source, you’ll want to make sure that you at least have a proper ITIN before the tax filing deadline. Any foreign dependents will also have to have their own numbers.

Obviously, your schedule will be quite busy while you’re attending classes, and this may seem like a tremendous burden. Fortunately, the IRS doesn’t expect you to handle everything on your own, and has resources available in most communities to assist you with the filing process. There are also many immigration attorneys that can help you should you run into any sort of complication.

As one of the hundreds of thousands of foreign nationals taking advantage of the great educational opportunities available in the United States, you enjoy many benefits that most people in the world will never experience. With those benefits comes added responsibility, including various tax filing requirements. By obtaining your ITIN, you can ensure that you’re able to meet those obligations in a responsible manner.