The Internal Revenue Service (IRS) recently issued a statement regarding the Social Security Administration's (SSA's) delays in issuing social security numbers (SSNs) to foreign nationals as a result of procedures implemented in September 2002.  Specifically, the SSA cannot issue a SSN to an individual until the SSA has obtained confirmation of the individual's identity and employment authorization from the U.S. Citizenship and Immigration Service.  In the past, the IRS would issue an Individual Taxpayer Identification Number (ITIN) to such employment-authorized foreign nationals who lacked a valid SSN.  The IRS has advised that it will no longer issue an ITIN under these circumstances.  The individual must obtain a SSN to use for tax and withholding purposes.  The IRS warns that employers may be penalized if they fail to furnish a payee ITIN on an information return, such as a Form W-2 or 1099.  However, should the failure to include an ITIN result solely from the employer waiting for a SSN to be issued to the individual, the IRS has stated that it will be "quite favorable toward considering this situation one in which 'reasonable cause' exists for not asserting such penalties."  The employer would need to keep documentation that the failure to provide the ITIN or SSN was due to delays at the SSA.

The IRS also advised that any Form W-4 submitted by an employee to an employer lacking the employee's SSN is invalid, and the employer must withhold the employee's wages at the rates corresponding to "Single" filing status, with no (zero) personal exemptions allowed. Such withholding rates must continue until a proper Form W-4 is provided.

Further instructions for other withholding forms are provided in the IRS press release.  Employers should refer to the press release, and consult with their tax preparers should they encounter an employee unable to provide a SSN or ITIN.

For more details, see the IRS website at:
http://www.irs.gov/businesses/small/international/article/0,,id=129227,00.html

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