An Individual Tax Identification Number (ITIN) is for people who live in the United States but do not qualify for a Social Security Number. If you’re here working in the US, you should have been issued a Social Security Number, but your spouse and children weren’t. In order to claim them on your US income tax return, you’ll need to obtain ITINs. Here are my instructions for the best way to do it.
First, you’ll have to fill out the right form. It’s called a W7 and here’s a link to the IRS website to download it: http://www.irs.gov/pub/irs-pdf/fw7.pdf
Each person needing an ITIN will have to complete a separate form. For example: if you want to claim your wife and your daughter on your US tax return, then you’ll need two separate forms.
In the section of the form where they ask for identifying documents, if you’ve got a passport, that’s your document. Don’t even consider the other documents if a passport is available; it can be a headache using them.
You will apply for the ITIN at the same time that you file your income tax return. You will attach the W7 form (or forms) to the front of your tax return. You will list your dependents’ names on the return and in the section that says “Social Security Number” you will write “applied for.” Note: you’re not applying for a Social Security Number, it’s an ITIN number and that’s understood because you’re submitting the W7 with the form. ITIN numbers are different from Social Security Numbers and the IRS computers recognize that; you’re not being dishonest in any way.
If you read the instructions to the form W7, it will tell you about mailing the return and getting your documents notarized, etc. Don’t do that! The best and fastest way to process getting your ITIN numbers is for you to go in person, with your documents and your dependents, to the nearest IRS office to file your taxes in person. The IRS agent at the desk will examine your documents right there, stamp what needs to be stamped, and will send your return off to the correct processing house from there. If there’s anything wrong with the paperwork, you’ll find out right then, and not three months later when they ask you to resubmit everything.
Because your tax return is being submitted by paper, there will be the additional delay associated with the ITIN, and your tax refund will be very slow. Do not be surprised if it takes 12 weeks for them to process your return. Once the ITINs are processed, you’ll receive paperwork in the mail. You’ll use those numbers on future tax returns and you won’t have to go through the process again. You’ll even be able to e-file which gives you a much faster refund.
Extra stuff to know: An ITIN number allows you to file an income tax return and claim a spouse or a dependent. There are some tax benefits (most notably the Earned Income Credit) that are not allowed with an ITIN, but only with a Social Security Number. If your family’s status changes and you later obtain Social Security Numbers for them, you are allowed to amend your prior year’s tax returns (up to three years) to claim any tax benefits that you missed earlier because you used an ITIN number.
Heads up about tax software: Some software programs can’t process a tax return correctly if there isn’t a number in the social security box. They will generate a “fake” number to create the return and then it has to be deleted at the end. Make sure that your return says “applied for” in the social security box before you submit it and that there’s no fake number in there. It will delay the processing of your return by months.
Claiming parents is difficult, but it can be done if you pass the “Qualifying Relative” tests. But first, here are the two biggies that tend to get in the way:
- You cannot claim a married person who files a joint return with his or her spouse. So if your parents file a joint tax return in the United States, then you won’t be able to claim them. (I’m guessing they don’t, but I wanted to make sure that I told you about that.)
- To claim someone as a dependent, the person must be a US citizen, US resident alien, US national or resident of Canada or Mexico. Where my clients have had trouble before is when their parents visit the US, but their visas are only for 6 months, no longer. Then they don’t qualify as US residents. I just wanted to make sure you knew about the 6 month rule because that’s the issue most likely to cause Indian families trouble with claiming their parents. After that, the rules are the same for anyone else in America who wants to claim their parents on their US income tax return. You need to pass the qualifying relative test.
The Qualifying Relative Test has 4 parts:
- They cannot be considered a qualifying child of anyone else. No problem! As your parents, I’m guessing they’re both over the age of 24. Easy pass.
- Member of household or relationship test. As your parents, they do not have to live with you. Also, since they are your parents, they automatically pass the relationship test. Easy pass.
- Gross income test. This one is harder. They cannot have more than than $3,650 in gross income for the year. If they are retired, they might qualify, but if they are receiving a taxable pension, that could kick them out of being a dependent. In the US, for example, my mother in law receives Social Security income which isn’t taxable and it doesn’t count as gross income. Her other income is less than $3,650 so she would pass the gross income test for me to claim her as a dependent. Remember, once your parents become US residents, they will be taxed on their “world wide income.”
- Support Test. In order to claim your parents as dependents, you must provide more than 1/2 of their support. Let’s say that your parents each earn $3,000 a year in some type of pension. For you to be able to claim them as dependents, you would have to pay more than $3,000 for support for each of them. For example, if they live with you, then you would consider part of your rent or mortgage to be towards their support. Also food, clothing, medical expenses, etc. If they don’t live with you, who is paying for their rent, food, clothing, etc.? Using my mother-in-law as an example again: although I pay some of her bills, I definitely don’t pay over 1/2 of her support. She pays for her food and rent with her Social Security money so I don’t come close to the 50% of her support.
If you do find that you qualify to claim your parents, then you would complete the W7 forms for them, so that they have an ITIN number, and submit them with your next tax return. I find that the best way to handle the W7 form is to take your tax return in to the nearest IRS office with your supporting documents (like passports) and submit them there. Although it might be inconvenient making the trip, it will save you a lot of hassle in the long run.