For global entrepreneurs looking to establish a business in the United States, understanding the intricacies of the ITIN (Individual Taxpayer Identification Number) and SSN (Social Security Number) is crucial.

These two identifiers serve different purposes and are essential for conducting business in the U.S. While residents typically obtain an SSN, non-residents often require an ITIN to meet tax obligations and operate legally.

In this article, we will delve into the differences between these two numbers and how obtaining the right one can set your business up for success.

Let’s explore how doola can simplify the process with our best-in-class ITIN services, ensuring your entrepreneurial journey in the U.S. is smooth and efficient.

Understanding Resident vs. Non-Resident Citizen

Key Differences Explained

When launching a business in the United States, it’s essential to distinguish between a resident and a non-resident citizen. A resident citizen is typically a U.S. citizen or a lawful permanent resident (green card holder) who resides in the U.S.

They are eligible for an SSN, which is their primary identification for tax and employment purposes.

On the other hand, a non-resident citizen is someone who resides outside the U.S. but may have business interests or income sources within the country. Non-residents are generally not eligible for an SSN.

Instead, they require an ITIN to meet their tax obligations and to operate legally in the U.S.

Legal Implications

The legal implications of being a resident versus a non-resident citizen in the U.S. are significant. For residents, possessing an SSN is mandatory for employment, tax filing, and accessing various social services.

Failure to obtain an SSN or misuse of it can result in legal penalties, including fines and potential disqualification from certain benefits.

Non-residents must secure an ITIN to comply with U.S. tax laws. The ITIN is used for tax reporting and allows non-residents to fulfill their tax obligations without being eligible for an SSN.

Failure to obtain an ITIN when required can lead to penalties, interest on unpaid taxes, and potential issues with the Internal Revenue Service (IRS).

Business Impacts

The distinction between resident and non-resident status has direct business impacts. For resident entrepreneurs, having an SSN facilitates straightforward business registration, credit access, and staff employment.

It also simplifies interactions with banks and government agencies, as the SSN is a widely recognized form of identification.

Non-resident entrepreneurs face different challenges. Without an SSN, they must rely on an ITIN to manage their tax responsibilities and compliance.

While an ITIN allows for legal business operations, it can sometimes complicate processes such as opening a business bank account or applying for credit. Some financial institutions and service providers may have additional requirements for non-residents.

What Is an ITIN?

Purpose of an ITIN

An Individual Taxpayer Identification Number (ITIN) is issued by the Internal Revenue Service (IRS) to individuals who are required to have a U.S. taxpayer identification number but are not eligible for a Social Security Number (SSN).

The primary purpose of an ITIN is to facilitate tax reporting and ensure that individuals, including non-resident entrepreneurs, comply with U.S. tax laws.

An ITIN allows non-residents to file U.S. tax returns, claim tax treaty benefits, and meet other tax-related obligations, including opening a U.S. bank account. It is also essential for reporting income earned in the U.S., thereby avoiding penalties and interest on unpaid taxes.

Additionally, an ITIN can open a U.S. bank account and apply for loans, making it a critical tool for non-resident entrepreneurs conducting business in the U.S.

Who Needs an ITIN?

An ITIN is necessary for individuals with U.S. tax obligations who are not eligible for a Social Security Number (SSN).

This group includes non-resident aliens who must file a U.S. tax return, resident aliens who do not qualify for an SSN, and dependents or spouses of U.S. citizens or resident aliens who must file tax returns.

Moreover, non-resident entrepreneurs conducting business in the U.S. often require an ITIN to comply with tax regulations, report income, and claim tax treaty benefits.

Foreign investors and partners in U.S. partnerships may also need an ITIN to meet their tax responsibilities.

Applying for an ITIN

Applying for an ITIN involves submitting Form W-7, Application for IRS Individual Taxpayer Identification Number, to the IRS.

This form requires personal information and supporting documentation to verify your identity and foreign status. Acceptable documents include a passport, national identification card, and visa.

The application can be mailed directly to the IRS, submitted through an IRS-authorized Certified Acceptance Agent, or delivered in person at designated IRS Taxpayer Assistance Centers.

Accurate information and correct form completion are essential to avoid processing delays.

Once approved, the IRS will issue an ITIN, which can be used to file tax returns and fulfill other tax-related obligations.

For global entrepreneurs, obtaining an ITIN is critical in ensuring compliance with U.S. tax laws and facilitating smoother business operations and financial transactions within the United States.

What Is an SSN?

Purpose of an SSN

A Social Security Number (SSN) is a nine-digit number issued by the Social Security Administration (SSA) to U.S. citizens, permanent residents, and certain temporary residents. The primary purpose of an SSN is to track individuals’ earnings and eligibility for social security benefits.

However, it also serves multiple other U.S. economic and governmental functions.

An SSN is essential for employment, as employers use it to report wages to the government and to determine eligibility for social security benefits. It’s also required to file tax returns, open bank accounts, apply for credit, and access various government services and benefits.

An SSN is often a unique identifier in many private and public sector transactions.

Having an SSN simplifies many aspects of business operations for resident entrepreneurs, from tax filing to securing financing, making it a critical element of their business toolkit.

Who Needs an SSN?

An SSN is required for U.S. citizens, permanent residents, and certain temporary residents eligible to work in the United States. It is essential for anyone seeking employment, as employers use the SSN to report earnings and withhold taxes.

Additionally, an SSN is necessary for filing personal tax returns and accessing social security benefits.

Beyond employment, an SSN is often required for various financial activities.

This includes opening U.S. bank accounts, applying for loans, and obtaining credit cards. It also plays a crucial role in accessing government services such as Medicare, Medicaid, and other social security benefits.

Applying for an SSN

To apply for an SSN, individuals must complete Form SS-5, Application for a Social Security Card, and submit it to the Social Security Administration (SSA).

The application process requires documentation proving identity, age, and citizenship or lawful immigration status. Acceptable documents include a U.S. birth certificate, passport, or permanent resident card.

Applications can be submitted in person at a local SSA office or by mail. To ensure timely delivery, original documents or certified copies from the issuing agency must be provided. Once the application is processed, the SSA will issue an SSN card, typically within two weeks.

Key Differences: ITIN vs. SSN

Eligibility Criteria

Understanding the eligibility criteria for ITINs and SSNs is critical for global entrepreneurs. An SSN is available to U.S. citizens, permanent residents, and particular temporary residents authorized to work in the U.S.

It is primarily intended for individuals who are employed or seeking employment, as it is used to report earnings and calculate eligibility for social security benefits.

Conversely, an ITIN is designed for non-resident aliens, resident aliens who are not eligible for an SSN, and their dependents or spouses needing to file a U.S. tax return. It is not used for employment purposes but strictly for tax reporting.

Usage in Business

The usage of an ITIN versus an SSN in business settings varies significantly, affecting how entrepreneurs operate within the U.S. An SSN is integral for resident entrepreneurs, enabling them to register their business, file taxes, hire employees, and access various financial services such as opening business bank accounts and applying for credit.

On the other hand, non-resident entrepreneurs must rely on an ITIN to fulfill their tax obligations. While an ITIN allows non-residents to file U.S. tax returns and report income, it may not be as universally accepted as an SSN for other business activities.

For instance, some banks and financial institutions may have additional requirements or restrictions for opening accounts without an SSN.

Understanding these differences ensures entrepreneurs choose the correct identification number for their business needs, enabling smoother operations and compliance with U.S. regulations.

Tax Implications

Global entrepreneurs should understand the tax implications of having an ITIN versus an SSN. Residents use an SSN to report earnings, file personal tax returns, and access various social security benefits.

It simplifies tax filing and ensures that residents comply with U.S. tax regulations.

In contrast, an ITIN is specifically for non-resident aliens and others who are not eligible for an SSN but have U.S. tax obligations. It allows them to file tax returns, report income, and claim tax treaty benefits.

While an ITIN facilitates compliance with tax laws, it does not grant eligibility for social security benefits or authorize employment in the U.S.

Entrepreneurs must choose the correct identifier to meet their tax responsibilities accurately. Misusing or failing to obtain the appropriate identification number can lead to penalties, interest on unpaid taxes, and complications with the IRS, affecting the smooth operation of their business.

How doola Can Help

doola simplifies obtaining an ITIN for non-resident entrepreneurs, ensuring you meet U.S. tax obligations without hassle. doola offers a streamlined ITIN filing service focusing on global founders that guides you through the necessary paperwork and documentation.

Beyond ITIN filing, doola provides comprehensive company formation services with doola Formation, helping you establish your U.S. business entity efficiently.

Sign up today to start your dream U.S. business. 

FAQs

Who can apply for an ITIN?

Individuals with U.S. tax obligations can apply for an Individual Taxpayer Identification Number (ITIN) but are not eligible for a Social Security Number (SSN).

This includes non-resident aliens who must file a U.S. tax return, resident aliens who do not qualify for an SSN, and, dependents or spouses of U.S. citizens or resident aliens who must file tax returns.

Foreign investors and partners in U.S. partnerships may also need an ITIN to report income and comply with U.S. tax regulations. Additionally, individuals claiming tax treaty benefits or needing to meet other tax-related obligations can apply for an ITIN.

Can I have both an ITIN and SSN?

No, you cannot have both an ITIN and an SSN simultaneously. The IRS issues ITINs to individuals who are not eligible for an SSN but have U.S. tax obligations. If you qualify for an SSN, you must use that for all tax and identification purposes, and you should not apply for an ITIN.

If you already have an ITIN and later become eligible for an SSN, you must apply for an SSN and discontinue using your ITIN.

Once the SSN is issued, you should notify the IRS and update your tax records to reflect the new number. The IRS will then associate your tax history with your SSN, ensuring continuity and compliance.

How long does ITIN processing take?

The processing time for an ITIN application typically takes about seven weeks from when the IRS receives your completed application and supporting documents. However, peak tax filing season can take up to 11 weeks.

Ensuring that your Form W-7 is accurately completed and that all required documentation is included can help avoid delays.

What documents are needed for an ITIN?

To apply for an ITIN, you must submit Form W-7, Application for IRS Individual Taxpayer Identification Number, and supporting documents verifying your identity and foreign status.

The primary documents accepted are a valid passport, proof of identity, and foreign status.

If you do not have a passport, you can provide other documents. These may include a national identification card, a U.S. visa, a foreign voter registration card, or a civil birth certificate.

Each document must be current and contain your name, photograph, and information establishing your foreign status.

How does doola simplify ITIN filing?

doola simplifies the ITIN filing process for global entrepreneurs by offering a streamlined, guided service that ensures accuracy and compliance.

Its platform provides step-by-step assistance with completing Form W-7 and gathering the necessary supporting documents, reducing the likelihood of errors and omissions, which can delay processing.