Questions for tax return preparers

Q&A for Software Providers and Tax Preparers (including volunteer tax return preparers)

What is the change and how does it affect taxpayers with Individual Taxpayer Identification Numbers?

The IRS e-file system has been changed to allow returns being filed with an Individual Taxpayer Identification Number to show wages reported to a Social Security number. It is now possible to e-file a return with an ITIN/SSN mismatch. In the past, these returns could only be filed on paper.

The taxpayer's correct ITIN should be used as the identifying number at the top of Form 1040. When inputting wage data, the SSN should be entered exactly as shown on the Form W-2 issued by the employer.

Why the change?

An e-file error code was designed to reject returns filed with typographical errors, but the unintended consequence led to returns being 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.

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

No, the programming change is only for inputting Forms W-2 with a Social Security number while the return is filed with an ITIN.

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

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.

Has this changed the W-7 application process?

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.

Isn’t it illegal for people to use the SSN of another person?

Yes, but the Internal Revenue Code does not distinguish between legal or illegal income. Regardless of how the income was earned, if it is taxable income, the person who received the income is required to file a federal tax return and report the income. 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.