Benefits and Drawbacks of obtaining an ITIN for a spouse or dependent

As a Certifying Acceptance Agent, I work with a lot of clients who want to obtain an Individual Taxpayer Identification Number for their spouse and/or children. Here are some things to consider before starting that process.

What is an ITIN?

An ITIN, or Individual Taxpayer Identification Number, is a number issued by the IRS to individuals who are not eligible for a Social Security Number (SSN) and need to be identifiable by the IRS. Typically this is because they need to file a tax return or because someone who is paying them – like a bank – needs to report the payment to the IRS and the IRS needs to be able to match that information to the individual.

Why would I get an ITIN for my spouse?

If you are a U.S. citizen or resident, obtaining an ITIN for your spouse allows you to file a joint tax return with them, which doubles your standard deduction; this can reduces your income tax bill or increase your refund by as much as several thousand dollars.

The Married Filing Separately filing status makes you ineligible for certain tax credits and makes it difficult to contribute to a Roth IRA. If you receive Social Security benefits, filing separately automatically makes up to 85% of those benefits taxable if you lived with your spouse during the year. Filing jointly eliminates these problems.

Having an ITIN may also make it easier to add your spouse as a joint owner or authorized user on US bank accounts, or in some cases even make it possible for them to open their own.

What are the downsides?

Simply getting an ITIN doesn’t have any downsides, but filing a joint tax return does. You’re ‘electing to treat your spouse as a resident alien for tax purposes’, which means the IRS will treat them just like any other US citizen or resident: they have to file a tax return every year declaring their worldwide income.

In most cases, they won’t owe any US taxes, but there are circumstances where they might.

If they have foreign financial accounts, they won’t need to file a Report of Foreign Bank and Financial Accounts (FBAR), but they might have to report assets on Form 8938 (on a joint return for taxpayers abroad, the threshold for needing to file this is $400,000 or $600,000 USD in foreign accounts).

This election is a once-in-a-lifetime choice: the nonresident alien can revoke it, but if revoked they can never make it again, even if they marry a different US citizen or resident in the future.

Why would I get an ITIN for a dependent?

If you are unmarried, or married to a nonresident alien who doesn’t want to get an ITIN, getting an ITIN for your dependent may allow you to claim Head of Household filing status. Head of Household increases your standard deduction by 50% compared to Single or Married Filing Separately.

If (and only if) your dependent is a ‘resident alien’ living in the United States, you may be eligible to claim a $500 Other Dependents Credit if you obtain an ITIN for them.

Obtaining an ITIN for a dependent does not incur the kind of filing requirements for your dependent imposed on spouses who choose to file jointly – that’s related to the joint filing, not the ITIN itself.

How do I apply for an ITIN?

I’m a Certifying Acceptance Agent for ITIN applications, so I can help prepare and submit an ITIN application for you, including verifying your IDs so you don’t have to mail them to the IRS. Click here for more information.

Motivos aceptables para obtener un ITIN

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