When tax time approaches, it has become tradition that a media outlet looks into the relationship between undocumented immigrants and taxes. We may only be immigration attorneys, but we’re also New Orleanians. We live in a city that invents traditions with same frequency that people change socks, so with the tax deadline coming up fast, here’s our version of this time honored story.
Do undocumented immigrants pay taxes?
The short and unequivocal answer is yes. Immigration opponents who portray them as a drain on the system are simply wrong, and in many cases immigrants pay money into the public coffers with little to no hope that any of it will ever directly aid them. In 2017, the Institute on Taxation and Economic Policy wrote:
undocumented immigrants living in the United States pay billions of dollars each year in state and local taxes. Further, these tax contributions would increase significantly if all undocumented immigrants currently living in the United States were granted a pathway to citizenship as part of a comprehensive immigration reform. Or put in the reverse, if undocumented immigrants are deported in high numbers, state and local revenues could take a substantial hit.
It’s easy to think of “taxes” as income tax, a deliberate, formal procedure that looms over us every spring. The assumption is that undocumented immigrants don’t pay income tax, but studies consistently show that half to three-quarters of undocumented immigrants do. Not having a valid social security number makes it harder, but many get Individual Tax Identification Numbers (ITINs), which make it possible for them to pay income tax. There are other kinds of taxes though:
Estate taxes and gift taxes aren’t necessarily their concerns, but the others accompany consumption, work, and participation in civic life. They’re not tied to social security numbers, and they pay them in the process of living day to day life.
Those payments into the system don’t make undocumented immigrants eligible to benefit from them. Steven Hubbard of ImmigrationImpact.com recently wrote, “ITIN holders are not eligible for all the tax benefits and public benefits that U.S. citizens and other taxpayers can receive. For example, they are not eligible for Social Security benefits or the Earned Income Tax Credit (EITC).”
"They contribute to all of our communities," tax preparer Jorge Beltran told The Columbus Dispatch. "They pay the school system from their taxes. They pay for the roads from their taxes, and they spend money they make in the grocery stores and movie theaters and everywhere but nobody knows about it."
Many of these taxes are paid passively by employees working with social security documents that are borrowed or forged. They’re still withheld by employers even though the numbers are fraudulent. The Social Security Administration records discrepancies between numbers and names when it discovers them and can notify the employer, but since it has no enforcement division, there’s little incentive for the employer to deal with the situation.
The Internal Revue Service does have the ability to enforce, but since the penalty to the company is only $50 for each mismatched social security number, it’s not an enforcement priority.
“The Social Security system has grown increasingly reliant on this stream of revenue, particularly as aging Baby Boomers start to retire,” Alexia Fernández Campbell wrote in The Atlantic in 2016. “Stephen Goss, the chief actuary of the Social Security Administration, estimates that about 1.8 million immigrants were working with fake or stolen Social Security cards in 2010, and he expects that number to reach 3.4 million by 2040. He calculates that undocumented immigrants paid $13 billion into the retirement trust fund that year, and only got about $1 billion in benefits. ‘We estimate that earnings by unauthorized immigrants result in a net positive effect on Social Security financial status generally, and that this effect contributed roughly $12 billion to the cash flow of the program for 2010.’”
So why do undocumented immigrants pay income tax? On the surface, it seems inconceivable to people who hate paying them. If you could avoid them, why wouldn’t you?
The answer is the mindset of immigrants, who hope to establish a productive life in the United States. When/if they become eligible for a change of status, paying taxes voluntarily is a way to show “good moral character,” which is one of the salient factors considered by United States Citizenship and Immigration Services (USCIS) when processing an application. A history of paying taxes also establishes a paper trail of time in the United States, and in some applications, that is relevant.
The actual amount of money paid in taxes by undocumented immigrants is meaningful: $30.8 billion in 2021, including $18.6 billion in federal income taxes and $12.2 billion in state and local taxes. The Institute on Taxation and Economic Policy argued in 2017 that the state and local tax revenues could go up as much as $2.18 billion a year if comprehensive immigration reform granted legal status to many of these workers.
According to the study,
Multiple studies have shown that legal immigrants have higher wages than undocumented immigrants, thus gaining legal status could lead to a boost in wages. The wage boost is in part due to better job opportunities that would be made available to workers with legal status and also in part to an increased access to higher-level skills and better training. Most comprehensive reform measures to date have included strong incentives or requirements for undocumented immigrants granted legal status to fully comply with tax law.
We have repeatedly called for comprehensive immigration reform, which is badly needed as so many of our regulations including those on asylum were written with very different conditions in America and the world in mind. As a country, we have systemic disincentives for foreign nationals to bring their talents and their money to the United States.
As a quick look at the relationship between undocumented immigrants and taxation shows, we’re also leaving tax dollars on the table with our antiquated positions.
Photo by Kelly Sikkema on Unsplash.
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