Why Online Brokers Need SSN (Social Security Number) When Setting Up Account?
Are You Required to Enter a Social Security Number When Opening a Brokerage Account?
If you plan to open a brokerage account with a U.S.-based firm, you will need to supply several pieces of information. Here are the details:
Patriot Act of 2001
The Patriot Act is a federal law that requires financial institutions such as banks and brokerage firms to identify their customers when they open accounts. This means they must obtain various pieces of information, such as name, date of birth, address, and driver’s license number. Social Security Number (SSN) is another identifier that is commonly requested. In fact, it is the most common identifier financial institutions use. It is normal practice for brokerage firms to request this piece of information.
Using an ITIN Instead
Some brokerage firms will accept an ITIN (Individual Taxpayer Identification Number) in lieu of a Social Security Number. If you don’t qualify for an SSN, you can get an ITIN from the Internal Revenue Service (IRS). To do this, you’ll need to fill out
Form W-7 and submit it to the IRS. To qualify for an ITIN, you must be a nonresident or resident alien, or a spouse or dependent of such, and not be eligible for an SSN.
Other Uses of a Social Security Number or Individual Taxpayer Identification Number
Besides identifying their clients, brokerage firms must use Social Security Numbers and Individual Taxpayer Identification Numbers for other purposes. The primary one is for tax reporting, another function that is required by law.
Uncle Sam wants a piece of your brokerage account, at least the ones he’s legally able to tax. Except for certain tax-exempt retirement accounts, these are most brokerage accounts. In order to know exactly who owes how much, the IRS wants each brokerage account to have a tax number attached to it. If it’s a joint account, this will be two numbers.
If you apply for margin privileges with your brokerage account, you will definitely have to supply your SSN or ITIN. Applying for margin is the same as applying for a loan (margin is a type of loan), so a credit check is necessary. The brokerage firm will use your tax number to perform a credit check, which is an important part of the credit application process.
Business Accounts May Be Able to Use an Employer Identification Number (EIN)
Entities that open brokerage accounts may be able to supply an EIN in lieu of an SSN or ITIN. To be eligible, the account will have to be a business account. To obtain an EIN, you’ll need to complete and submit
Form SS-4.
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Protection of Your Information
Financial institutions today implement a variety of technologies to safeguard the information you give them. These include 128-bit encryption technology, account alerts, and a variety of other measures to protect your data. Nevertheless, cybercrime is a common problem today, and no financial institution can guarantee 100% safety. You can open an account over the phone or through snail mail, but the information you provide will still be stored electronically.