FAQ on IRS e-file and ITINs

Q. What is the policy change for e-filed returns and how does it affect taxpayers with Individual Taxpayer Identification Numbers?

A. The change covers tax returns with an Individual Taxpayer Identification Number that is different from the Social Security Number on the taxpayer’s W-2. In the past, these returns could only be filed on paper. The IRS e-file system has been changed to allow ITIN returns to be filed showing wages reported to a Social Security number that is different from the ITIN.

The taxpayer's correct ITIN should be used as the identifying number at the top of Form 1040. When inputting wage data, the mismatched SSN should be entered exactly as shown on the Form W-2 issued by the employer. It is now possible to do so when e-filing a return with an ITIN/SSN mismatch.

Q. Has this changed the W-7 application process?

A. No. The process for submitting Form W-7, Application for an IRS Individual Taxpayer Identification Number, is the same as before. This is a change to the IRS e-file system as it relates to tax returns filed by individuals who already have an ITIN.

Q. Why the change?

A. An e-file error code was designed to reject returns filed with typographical errors, but the unintended consequence was that returns were rejected because of ITIN/SSN mismatches. The IRS has changed the programming to ensure that these returns will not be stopped, and transcription errors can still be caught. The change means that ITIN returns with an ITIN/SSN mismatch can be e-filed. This change will help ensure that tax information is being captured in the most efficient manner possible.

Q. Does this cover other mismatches (for example Form 1099-R)?

A. No. The programming change is only for inputting Forms W-2 with a Social Security number different from the primary or secondary ITIN.

Q. Will the W-2 wages be credited to the ITIN holder? How will this affect the person whose SSN is being used?

A. The wages are reported as being earned by the ITIN holder, and are taxable to the ITIN holder. The change will make it easier for IRS systems to associate the wages with the ITIN holder. This will stop the IRS from sending a notice to the person whose SSN is being used and eliminates the need for that person to prove that they did not earn the wages.

Q. Isn’t it illegal for people to use the SSN of another person when filing a federal tax return?

A.. Yes, but regardless of how the income was earned, the Internal Revenue Code states the person who received the taxable income is required to file a federal tax return and report it. Individuals with ITIN/SSN mismatches on their tax returns have always been required to file - this change just makes it possible to file the return using the IRS e-file system.

Q. Will these returns be processed in the same amount of time as other e-filed tax returns?

A. Yes, all e-filed tax returns are processed the same.

Q. Will all States with a filing requirement accept ITIN tax returns?

A. The states are in the process of being contacted to confirm their policies.

Q. Does the ITIN tax return have to be filed electronically?

A. No, the ITIN tax return can be filed electronically or on paper.

Q. Why do I have to override the employee’s SSN in TaxWise®?

A. Universal Tax Systems did not want to remove the automatic calculation from line “d” on the W-2 in TaxWise because it would mean the return preparer would need to enter each SSN on all W-2s, for all returns. This reduces the risk of error when entering the SSN on the W-2 and reduces burden on return preparers since this change affects a small percentage of electronically prepared returns.