Understanding U.S. Tax Identification Numbers and Compliance for Foreign Entities and Individuals

Compliance with long-standing rules requiring U.S. tax withholding on payments of U.S.-source income to nonresident aliens and foreign entities (collectively, foreign persons) is currently being enforced by the Internal Revenue Service (IRS). Customers in the United States often require their foreign suppliers to prove their tax residency status by providing a U.S. withholding certificate or by filing for an exemption from withholding.

Although neither federal nor state law necessitates a U.S. taxpayer identification number (TIN) for the recipient of the payment, a foreign vendor claiming an exemption from or reduction in withholding must submit a U.S. withholding certificate with a U.S. TIN. For purposes of claiming exemption from withholding on U.S.-source income from publicly traded investments, a TIN is not required (per the rules). Form 1042-S information reporting also necessitates a U.S. TIN unless one of the exceptions listed in the instructions applies. If withholding was done at the required rate, for instance, a TIN is not needed.

If you need to file a tax return in the United States, you’ll need a Taxpayer Identification Number (TIN). If the correct amount of tax (including any reduction due to a tax treaty) was withheld from a nonresident alien or foreign entity, then they are exempt from filing a tax return. Even if the income is exempt under a tax treaty, filing a tax return is still necessary if the income was earned through an ECI with the United States. Services rendered for monetary compensation are included in ECI. Non-citizens whose only source of income is wages that do not exceed the personal exemption amount are not required to file tax returns.

When should I fill out the ITIN form?

Since you’ll need to include a copy of your federal income tax return with your ITIN application, you should do so as soon as you’re ready to file your taxes. An ITIN application can be submitted at any time during the year; however, interest and/or penalties may be assessed if the attached tax return is submitted later than the due date. Avoid this by meeting the April 15 filing deadline for your current tax year’s return. You can take the help of CFO India to handle all the paperwork.

As soon as you determine that you are exempt from filing a tax return because of one of the circumstances listed on page 3 of Form W-7, apply for an ITIN.

How can you apply for the ITIN number?

EINs in the USA for Businesses

Although it may not have any workers in the United States, a U.S. TIN for an entity is still an EIN. Whether or not an entity is subject to U.S. taxes, its identification number (TIN) must be an EIN in order to comply with federal tax regulations.

Form SS-4 is utilized to apply for a U.S. EIN. For organizations without a U.S. headquarters or principal office/agency, the Internal Revenue Service has provided the following guidelines for applying for an Employer Identification Number (EIN):

• By Telephone: Calling (267) 941-1099 will get you an EIN instantly. An agent collects the data, issues the EIN, and then calls the appropriate party to give it to them.
• By Fax: The Form SS-4 application can be faxed to (267) 941-1040 once it has been filled out. If the taxpayer provides their fax number, the IRS will send the EIN to them via fax within four business days.
• By Mail: Completed SS-4 forms should be mailed to:

Internal Revenue Service

Attn: EIN International Operation

Philadelphia, PA 19255

U.S. TINs for Individuals

Identification Number (ITIN) qualifies as U.S. TINs for individuals. In order to apply for a Social Security number, foreign nationals must be legally permitted to work in the United States in accordance with U.S. immigration law. (Even if a foreign national is not currently authorized to work in the United States, they may have been issued a Social Security number during a previous authorized work visit.) A Social Security number (SSN) can be applied for by filling out Form SS-5 and submitting it to your nearest Social Security Administration office.

To apply for an ITIN, foreign nationals must submit Form W-7 to the IRS’s ITIN Unit if they are not eligible to apply for a Social Security Number but need a U.S. TIN for federal tax administrative purposes. The form can be submitted by a foreign national either alongside their tax return or beforehand for one of the permitted pre-tax return reasons outlined on the form itself.

An individual may apply to obtain an EIN number in order to fulfill their business’s tax obligations (such as withholding and reporting payments to employees or contractors), but they cannot use their EIN to fulfill their own personal tax obligations (such as applying for an exemption from withholding).