Filing taxes with an ITIN and why it matters for buying

Many families with an ITINITIN (Individual Taxpayer Identification Number)An ITIN is a nine-digit number the IRS, the federal tax agency, issues to people who need a U.S. taxpayer identification number to file taxes and are not eligible for a Social Security number. It is for tax purposes only: it does not authorize you to work in the United States, does not qualify you for Social Security benefits or the Earned Income Tax Credit, and says nothing about your immigration status. You apply with Form W-7, and it expires if it goes unused for several years. Some lenders accept an ITIN for a mortgage.See the full definitionClose work, pay rent and save, but do not file taxes because nobody explained how or why. This guide is for you if you have an ITIN or are about to apply for one: it explains when you must file a tax returntax returnA tax return is the yearly form you use to report your income to the IRS and figure the tax you owe, so you can pay what is due or get a refund. The federal return for individuals is Form 1040. In general you must file if your gross income is above the minimum the IRS sets for your filing status, or if you had a certain amount of net earnings from self-employment; even when you do not have to, filing can pay off. You need your SSN or ITIN, and those of everyone else on the return, plus documents such as your W-2s and 1099s.See the full definitionClose, what you can gain by filing and why your returns weigh so much on the day you apply for a mortgage. All of it based on what the IRS, Fannie Mae and the CFPB say.

In net self-employment earnings; from there you owe self-employment tax

$400⁶

To claim a refund; after that you lose it if you did not file

3 years⁷

Of income history generally asked of self-employed borrowers (Fannie Mae)

2 years¹⁰

How long the Form 4506-C you sign for your lender is valid

120 days⁹

Do you have to file?

The ITIN exists for taxes. The IRS says you have a federal tax purpose when the law requires you to file, when you want to claim a refund or a tax benefit, or when you want to report your income on a return.¹ The number is issued for federal taxes only: it does not provide or change immigration status, and it does not qualify you for Social Security benefits or the Earned Income Tax Credit (EITC).¹

In general, you have to file if your income is over the filing requirement or if you have over $400 in net earnings from working for yourself, through side jobs or other independent work. That requirement depends on your filing status and your age; the IRS publishes it in tables on its site. Even if you made less, it may pay to file, for example to get back taxes your employer withheld.² The IRS says the same to ITIN holders: if you earned money but do not owe tax, you may want to file to get money back.¹

Dates matter. If you need more time, you can request an extension by the April filing due date, and you do not need an ITIN to request it. The extension gives you until October 15 to file without penalties, but it is only for filing: whatever you owe is due in April.¹

If you are self-employed or paid in cash

If you work for yourself, as the sole owner of your business or as an independent contractor, you are self-employedself-employedFor the IRS, you are self-employed if you run a business as a sole proprietor or work as an independent contractor, if you are a member of a partnership that runs a business, or if you are otherwise in business for yourself, including part-time or as a gig worker. Because no employer withholds taxes for you, you generally pay estimated taxes every quarter and file a yearly return. Besides income tax, you pay self-employment tax, which covers Social Security and Medicare. Your profit or loss is figured by subtracting your business expenses from your business income, usually on Schedule C.See the full definitionClose. When your net earnings were $400 or more, you pay self-employment tax, which is the Social Security and Medicare tax of people who work for themselves, and you file Schedule SE. Earnings are generally figured on Schedule CSchedule C (Form 1040)Schedule C is the form attached to Form 1040 to report the profit or loss from a business you operated or a profession you practiced as a sole proprietor, including gig work. An activity counts as a business if your main purpose is income or profit and you do it with continuity and regularity. On the schedule you subtract your business expenses from your income: if expenses are lower, the difference is your net profit, which becomes part of your income on Form 1040. That figure is also used to calculate self-employment tax on Schedule SE.See the full definitionClose.⁶

Being paid in cash does not change the rule. The IRS spells it out for gig or app-based work: that income is reported even if it comes from part-time or side work, even if you do not get a form such as a 1099, and even if you are paid in cash.⁵

If no one withholds taxes from your pay during the year, you may have to make estimated tax payments, even before you have an ITIN. In that case, on the payment voucher you write “ITIN TO BE REQUESTED” where the number goes.³

If the person who paid you sends a Form 1099Form 1099Form 1099 is a family of IRS information returns that report income other than employee wages. Anyone who paid you in the course of their business must file it with the IRS and send you a copy, on paper or electronically, early in the year. There are several types: 1099-NEC for freelance or contract work, 1099-K for payments by card or through online platforms, 1099-INT for bank interest, 1099-G for government payments such as unemployment, and 1099-MISC for other income. You use that information on your tax return.See the full definitionClose, keep it with your papers for the year. And if you work for an employer, keep your Form W-2Form W-2Form W-2 (Wage and Tax Statement) is the document your employer must prepare for each employee. It shows the wages you were paid and the taxes withheld from your pay, such as income tax and Social Security and Medicare taxes. The employer files it with the government and sends you a copy, on paper or electronically, in January or February so you can file your tax return. If it does not arrive or has errors, you first ask your employer to fix it; if you still do not get it, the IRS can help you obtain it.See the full definitionClose.

What you gain by filing and what you lose if you do not

Filing with an ITIN opens some benefits. If you are not eligible for an SSN, you can file a joint return with a spouse who is a citizen or resident alien. The credit for other dependents is a $500 non-refundable credit for people whose dependents do not qualify for the child tax credit. And the child and dependent care credit is also among the allowable benefits.¹

Filing on time or letting it slide

Your record grows

You file every year

• You can get back what was withheld or claim credits.¹
• You have copies and transcripts to show a lender your income.⁷
• Your ITIN does not expire, because it appears on your returns.⁴

The problem grows

You do not file

• A refund you do not claim within 3 years is lost.⁷
• The IRS may file a substitute return without your deductions.⁷
• A loan approval may be delayed.⁷
• After 3 consecutive tax years without using it on a return, your ITIN expires.⁴

Every return you file is one more paper that shows your income when you apply for a loan.⁹

Why it matters for buying a home

When you apply for a mortgage, the lender verifies your income, and your tax returns are part of that proof. The IRS puts it plainly: if you do not file, a loan approval may be delayed, because to buy or refinance a home you must give lenders copies of the returns you filed.⁷

Fannie Mae’s rules, which govern the loans it buys, are a good example. They require each borrower to have a valid Social Security number or ITIN, in addition to meeting legal residency and documentation requirements.⁸ And they say tax returns and transcripts are used to calculate and verify income; when required, returns must be copies of the originals filed with the IRS, with all schedules, or the lender may use transcripts instead.⁹

If you are self-employed, the weight is greater. Fannie Mae generally asks for a two-year income history, which the lender verifies with your signed returns for the past two years, with all schedules, or with IRS transcripts.¹⁰ Not every loan follows Fannie Mae’s rules: each type of loan and each lender has its own limits.¹¹ The ITIN mortgage guide explains the options.

Why does income weigh so much? Because the lender uses it to calculate your debt-to-income ratiodebt-to-income ratio (DTI)Your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income, that is, income before taxes. If you pay a certain amount each month across a car, cards, student loans and the mortgage you are asking for, and you earn three times that, your DTI is one third. Lenders use it to measure whether you can manage the payment; each loan type and lender sets its own limit, and assistance programs usually publish theirs. Paying down debt before applying improves your DTI.See the full definitionClose: your monthly debt payments divided by your monthly gross incomegross incomeGross income is the total you earn before taxes and other deductions are taken out. On your pay stub it shows up as gross pay, not as what lands in your account. Lenders use it to figure your debt-to-income ratio (DTI): they add up your monthly debt payments and divide them by your gross monthly income. When you apply for a mortgage, your annual pre-tax income can include full-time or part-time work, self-employment, tips, commissions, overtime and bonuses; the lender looks at whether you can reasonably expect that income to continue.See the full definitionClose. It is one way lenders measure whether you can make the payments, and each lender has different limits.¹¹

Example with real numbers

How much of income goes to the home

With the typical US household income and the typical payment on a home with an FHA loan and the minimum down payment.

Gross monthly income (US median)

$6,728

Monthly payment on a typical home (FHA)

$2,759

Home payment ÷ monthly income

41%

This is an example with national numbers. The lender does this math with the income it can verify on your returns or transcripts.⁹¹¹ Try it with your own numbers.

Run it with your numbersHow much house can I afford?

Your transcripts and Form 4506-C

A tax transcriptIRS tax transcriptAn IRS tax transcript is a free official summary of the information on your tax returns and tax account. It is not a photocopy of your return. There are several types: the tax return transcript shows most line items from your Form 1040 as filed and usually meets the needs of mortgage lenders; the tax account transcript shows changes made after you filed; the wage and income transcript shows what your W-2s and 1099s reported. You can get one through your IRS online account, by mail, by phone or with Form 4506-T.See the full definitionClose is the IRS’s official summary of what you filed. The IRS offers its transcripts at no charge. The tax return transcript shows most line items from your original return as filed, covers the current year and the three before it and, according to the IRS, usually meets the needs of mortgage lenders. It is not a photocopy of your return.¹³

You can view it in your IRS online account or order it by mail: it arrives in 5 to 10 calendar days at the address the IRS has, and you can also order it at 800-908-9946. It partially masks your personal information but leaves financial data visible for income verification.¹²

The lender can also request it directly, but only with your permission. The IRS explains that through its Income Verification Express Service (IVES) you authorize banks and lenders to see your records when you apply for a mortgage; the IRS only gives records to a third party with your consent, and you give it through your account or with the Form 4506-C the lender gives you.¹⁴

From your tax return to your loan

1. 1. You file every year

   By April, or October with an extension

   Whatever you owe is due in April, even with an extension.¹

2. 2. You keep a signed copy with all schedules

   The day you file

   The lender may ask for copies of the returns you filed.⁹

3. 3. You order your transcripts

   5 to 10 days by mail

   They are free and usually meet mortgage lenders' needs.¹³

4. 4. You gather two years if you are self-employed

   When you apply for the loan

   Signed returns for the past two years or their transcripts.¹⁰

   Try it with your numbersDocument checklist

5. 5. You sign Form 4506-C

   At or before closing

   It lets the lender request your transcripts; it is valid for 120 days.⁹

6. 6. The lender compares

   Before closing

   If it receives the transcripts before closing, it uses them to verify the papers you gave.⁹

On loans Fannie Mae buys, every borrower whose income counts toward qualifying signs their own Form 4506-C at or before closing. The form can request transcripts for up to four years and is valid for 120 days. If the lender receives the transcripts before closing, it has to use them to verify the income documents you provided.⁹ That is why it helps when what you filed and what you show match.

If you have years without filing

It is not too late to catch up. The IRS asks you to file every return that is due, even if you cannot pay in full, the same way and to the same place as an on-time return. You risk losing a refund if you do not file: to claim one for withholding you must file within 3 years of that return’s due date. If you do not file, the IRS may file a substitute return that might not give you the deductions you are entitled to.⁷

If you cannot pay everything you owe, you can ask for 60 to 120 more days to pay or, if you need more time, an installment agreement.⁷ If the IRS has no record that you filed a year, there is a verification of non-filing letter that confirms it.¹³

If you are just applying for your ITIN, keep in mind that in the year it is assigned you cannot e-file with it; from the following years, you can.¹⁵ If your ITIN expired because you went years without using it, see how to renew an ITIN.

Free help and how to choose who prepares your return

IRS VITAVITA (free tax preparation)VITA (Volunteer Income Tax Assistance) and TCE (Tax Counseling for the Elderly) are IRS programs that offer free basic tax return preparation by IRS-certified volunteers. They are meant for people with moderate income, people with disabilities and limited-English speakers; TCE focuses on people sixty and older. The IRS sets no program-wide income limit, but individual sites may set their own. Many sites serve in Spanish and help with ITIN applications and renewals. Filing taxes every year builds the record lenders ask for.See the full definitionClose sites prepare basic returns for free. Many serve people who generally make about $70,244 or less (each site can set its own limit), people with disabilities and limited-English speakers. Their volunteers are trained, among other things, to keep your information confidential. You find them with the IRS locator or at 800-906-9887.¹⁶

If you already have a problem with the IRS, such as an audit or a collection, Low Income Taxpayer Clinics (LITCs) can represent you, free or for a small fee, and also educate people who speak English as a second language. They are completely independent of the IRS.¹⁷

If you pay a preparer, the IRS gives clear signs. A paid preparer must sign your return and include their preparer number (PTIN). Be wary of anyone who charges a percentage of your refund or wants the refund deposited in their account, and never hire someone who files with a pay stub instead of a W-2. In the end, you are responsible for what your return says, no matter who prepares it.¹⁸

Mistakes that can cost you the loan

• Mistake: Not filing because you are paid in cash.

  Instead: Gig income is reported even if it is paid in cash;⁵ with $400 or more net from self-employment, Schedule SE applies.⁶

• Mistake: Waiting for the lender to ask for your returns before preparing them.

  Instead: File every year: not filing can delay a loan approval.⁷

• Mistake: Not keeping a copy of what you filed.

  Instead: Keep a signed copy with all schedules, or order the free transcript.⁹¹³

• Mistake: Hiring a preparer who does not sign your return.

  Instead: A paid preparer signs and includes their PTIN on every return.¹⁸

• Mistake: Letting your refund go into the preparer's account.

  Instead: The refund goes to your account; that request is a warning sign.¹⁸

• Mistake: Writing off an old refund without checking.

  Instead: You have 3 years from that return's due date to claim it.⁷

If this is you

You are paid in cash

The IRS says gig income is reported even if it is paid in cash.⁵ With $400 or more net from self-employment, Schedule SE applies.⁶

You have your own business

To buy, you are generally asked for two years of returns or their transcripts.¹⁰

Your partner is a citizen

You can file a joint return with a spouse who is a citizen or resident alien.¹

You want to buy in a year or two

A HUD-approved housing counselor reviews your papers with you, often for free or at low cost.¹⁹

What to do this week

1. Gather your W-2s, your 1099s and your income and expense records for each year.⁶
2. Check which years you still need to file; if unsure, order your IRS transcripts.¹²
3. Find a VITA site near you with the IRS locator or at 800-906-9887.¹⁶
4. Keep a signed copy of each return, with all schedules, in a folder for your lender.⁹
5. Estimate what you could pay for a home with the how much house can I afford tool.¹¹
6. If you want to buy soon, talk with a HUD-approved housing counselor about your papers.¹⁹