New requirements for persons without Social Security Numbers to re-verify their identities are aimed at migrant taxpayers and citizens with family members from outside the United States. The “Protecting Americans Against Tax Hikes” (PATH) Act makes it next to impossible for many to file taxes for this and future years.
“The Individual Taxpayer Identification Numbers (ITIN) program is critical to allow millions of people to meet their tax obligations.” – Internal Revenue Service (IRS) Commissioner John Koskinen.
This is a complex situation. Individuals without Social Security Numbers are assigned ITINs used to file their taxes. Following the passing of PATH this past December (Merry Christmas!), countless taxpayers have no idea they can no longer claim the Child Tax Credit or the American Opportunity Tax Credit (even though both of those were made “permanent by PATH); at least until they complete a time consuming and potentially expensive bureaucratic paper drill based upon the following schedule:
- ITINs that have not been used on a federal tax return at least once in the last three years are no longer be valid unless renewed by the taxpayer
- ITINs issued prior to 2013 that have been used on a federal tax return in the last three years must be renewed starting this fall on a rolling renewal schedule unless the ITIN has already expired:
- ITINs issued before 2008 will remain in effect until January 1, 2017
- ITINs issued in 2008 will remain in effect until January 1, 2018
- ITINs issued in 2009 or 2010 will remain in effect until January 1, 2019
- ITINs issued in 2011 or 2012 will remain in effect until January 1, 2020
“ITINs are for federal tax purposes only and are not intended to serve any other purpose. ITINs that are only used on information returns filed with the IRS by third parties do not need to be renewed. An ITIN does not authorize one to work in the United States or provide eligibility for Social Security benefits or the Earned Income Tax Credit. ITINs are not valid identification outside the tax system and do not establish immigration status.” (IR-2016-100, Aug. 4, 2016)
But here is the nuance in the law that changes the ITIN program into a national ID that certifies that the holder is not a resident of the United States: the required documentation to obtain or renew an ITIN “…includes such documentation as the Secretary may require that proves the individual’s identity, foreign status, and residency.” So, while we can’t require citizens to carry national IDs, we have a better way to sort out non-citizens through self-identification. By the way, the distinction between residency for tax purposes and for immigration purposes is confused by interpretation and the deemed intent of this phrase in the act.
Who needs an ITIN?
IRS issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. A non-resident alien individual not eligible for a SSN who is required to file a U.S. tax return only to claim a refund of tax under the provisions of a U.S. tax treaty needs an ITIN. Other examples of individuals who need ITINs include:
- A nonresident alien required to file a U.S. tax return
- A U.S. resident alien (based upon substantial presence) filing a U.S. tax return
- A dependent or spouse of a U.S. citizen/resident alien
- A dependent or spouse of a nonresident alien visa holder
What makes this most onerous on an individual basis is the current political climate. On the one hand, there is a major party Presidential candidate who suggests mass deportation and requiring a process for return that includes having filed taxes. On the other, there is this law that automatically invalidates the identification required to file taxes unless an individual submits an application for renewal that includes the information a “deportation force” would need to locate that individual. Yet even if the individual has a legal presence, the process is arduous at best.
The IRS is making an effort to streamline renewal. Previously, an application for an ITIN (Form W-7) could only be submitted attached to an income tax return with the person requesting the ITIN as a filer or dependent. That meant that the return could not be filed electronically. Paper returns take weeks to process and the W-7 extends that wait. The IRS recognized the backlog this could create and has changed the policy. I’ll describe the methods so you can appreciate the hazards and trepidation.
There are three methods taxpayers can use to submit their W-7 application package to renew their ITIN. They can:
- Mail their Form W-7 – along with the original identification documents or certified copies by the agency that issued them — to the IRS address listed on the form (identification documents will be returned within 60 days),
- Use one of the many IRS authorized Certified Acceptance Agents or Acceptance Agents around the country, or
- In advance, call and make an appointment at an IRS Taxpayer Assistance Center in lieu of mailing original identification documents to the IRS.
First, the W-7 (a version containing a new checkbox is due out in September and must be used) is confusing for native English speakers. There is a Spanish version. Some may find this difficult to comprehend but not all migrants are Hispanic and not all Hispanics read Spanish.
Next, the documents: many individuals do not have a variety of documents from which to choose and the one document they may commonly have, a passport, is not an easy document to comfortably send off and pray returns in 60 days, much less at all. Those familiar with any visa or immigration process know there are all sorts of delays that may occur. And if you have close family members in another country that may require your presence or you have any other reason to travel abroad during that time (like work), if you can depart, return is not an option until the documents are returned unless you hold more than one passport.
Note also: beginning 1 October, 2016, the IRS will no longer accept passports that do not have a date of entry into the U.S. as a stand-alone identification document for dependents from countries other than Canada or Mexico or dependents of military members overseas. Affected applicants will now be required to submit either U.S. medical records for dependents under age six or U.S. school records for dependents under age 18, along with the passport. Dependents aged 18 and over can submit a rental or bank statement or a utility bill listing the applicant’s name and U.S. address, along with their passport.
Yes, there is help available. However, there is reason to be cautious about Acceptance Agents. Most work at for-profit businesses; usually tax preparation outfits. While not all for-profit tax preparers are outright predators, you’ll find it isn’t common practice for them to inform clients that they may have their returns prepared free at a Volunteer Income Tax Assistance site. There is a temptation to mislead ITIN applicants even if not acted upon. Even by omission an inference may be assumed by the applicant that having a return prepared as part of the “package” of services, even though not required for this process, will obtain preferential treatment. But this is coming from someone who believes that if you paying the government for its services, you probably should not have to pay someone so that you can pay the government unless there is a potential return on that investment. Unfortunately, where a lot of individuals with ITINs originate, corruption informs their every transaction and they will knowingly comply, realizing that America has its own shadowy klepitalistic sub-economy.
So as an alternative one may make an appointment at an IRS Taxpayer Assistance Center. “Yes, you can.” Are those Centers busy without this burden? “You betcha.” All you want to do is what you have been doing for years: pay your taxes. Now you might have to ask yourself in this political climate, “Am I going to make an appointment at an office of a Federal Agency and present myself with all my identification but without the proof needed to show I have a legal presence?” Um, maybe if prior to Trump’s inauguration; certainly not afterwards.
There is more to this. There are a limited number of Acceptance Agents outside the United States. In Latino countries I have located three: two in Mexico and one in Costa Rica. Who said Trump won’t create jobs? They’ll just be outside the United States.
Is this a formula to encourage tax compliance? No, not any more than a Republican plan for healthcare is designed to provide access to healthcare.