…You’re probably thinking “huh?” right about now, and I know this post won’t have much interest to most of my readers, so if you’re not a non-US resident or citizen who wants to do contract work for US companies (for example: writing articles or patterns for US magazines, or writing or contributing to a book for a US publisher), you can skip the rest of this post!
Since I’ve been through the process of getting an ITIN (Individual Taxpayer Identification Number) I keep getting people referred to me for information about how to go about getting one. It wasn’t easy for me to find out the answers, so I’m sharing them here so that fellow non-US freelancers and contract workers can find this post through Google and figure out how it’s done without having to go through all the hassles I did.
This is how I did it, as a Canadian resident, but this information should apply to all other non-US contract workers and freelancers too; just substitute your own country for Canada throughout the rest of this post.
Note: I’m not a qualified tax professional and this information is based solely on my experience in late 2009. Please check with irs.gov or a certified acceptance agent (see below) to see if anything has changed before you submit your application.
Why do I need an ITIN?
If you’re Canadian and have no tie to the US, you should be paying Canadian income tax on your earnings, not US tax. However, if you want to do contract work for a US company, the IRS (the US Internal Revenue Service) requires the company to withhold 30% of your earnings to submit towards your US taxes, so you’ll only receive 70% of your money. (You then have to pay your Canadian taxes on that income as well.)
Although you can claim the withheld US tax back at a later date, there’s an easier way: if you submit Form W-8BEN to the company you’re working for, they don’t need to withhold the 30% US tax, and you’ll receive 100% of your payment (which, of course, you’ll report as income on your Canadian tax return).
To complete Form W-8BEN, you need to have an Individual Taxpayer Identification Number (ITIN). Your ITIN proves that you have no US ties and therefore do not need to pay US taxes.
How do I get an ITIN?
To apply for an ITIN, fill in Form W-7 and submit it, together with proof of identity and foreign status, to the IRS. (Let me warn you: Form W-7 is a minefield and it’s very easy to make a mistake on it and have it rejected.) This also means you have to mail off your passport to the US as proof of being non-American. You’d probably prefer to avoid that, right?
Okay, so here’s the best way around that: there are IRS-authorized Acceptance Agents outside the US (in Canada, and internationally) that you can visit. These agents can certify that they’ve seen your passport (so you don’t need to send it anywhere) and will also help you complete and submit your Form W-7 without making any mistakes.
It cost me about $120 (plus tax) – it’s not cheap to visit an accountant! – but it was well worth the money. Mine found and fixed a mistake I’d made on my application and wrote the letter certifying my identity and proof of foreign status. My application was approved and I received my ITIN about 6 weeks later.
How do I use my ITIN?
Once you have your ITIN, it’s yours to keep – it’s like a Social Security Number, except it proves that you’re not required to pay US taxes. You can fill in your number on Line 6 of Form W-8BEN and submit that form to each US company you work for, and you’ll be paid 100% of your earnings, without any US tax withheld.
If you’re not a US resident or citizen, you can receive 100% of your US earnings without the 30% federal tax withheld by following these steps:
- To get an ITIN, find an acceptance agent to help you submit Form W-7 to the IRS and to certify that they’ve seen your non-US passport.
- When you receive your ITIN, fill it in on Line 6 of Form W-8BEN.
- Submit a completed W-8BEN to every US company you do contract/freelance work for.
Yes, getting an ITIN is a hassle, a long process, and an expense (unless you’re willing to mail your passport to the US), but it’s worth it in the long run if you plan to do contract or freelance work for US companies: once you have your ITIN, you’ll never again have to claim back US taxes. 🙂