Originally published Feb. 28, 2011. Last updated Aug. 24, 2012
Yes, illegal/unauthorized/undocumented immigrants generally pay taxes the same way you and I pay them, but usually without access to the benefits that come with being a taxpayer.
How they pay
Every time you receive a paycheck, you probably notice that something is missing. That’s because your employer automatically withholds federal, state, and local income taxes and Social Security and Medicare taxes. Immigrants also have money automatically deducted directly from their paychecks —even those who are here illegally. But how? Well, the Social Security Administration estimates that 75% of undocumented immigrants are actually on formal payrolls and are paid by check just like anyone else. They get on the payroll by using fake or fraudulent social security numbers or social security numbers of the deceased, which are easily available from counterfeiters for a couple hundred dollars. A growing number of undocumented immigrants now file their income taxes using Individual Taxpayer Identification Numbers (ITINs). ITINs are issued by the IRS for filing purposes only and do not provide permission to work. According to the most recent estimates, at least 3 million unauthorized immigrants filed income taxes using ITINs in 2009. (NOTE: the IRS does not report undocumented immigrants to the Department of Homeland Security.)
Every time you buy something, you pay sales tax. That money goes to state and local governments. Staying at a hotel or renting a car, you pay state and local taxes. If you fill up your gas tank, you automatically pay state and federal gasoline taxes. If you buy liquor or cigarettes, you automatically pay various local, state, and federal excise taxes. Immigrants—legal and undocumented—all buy things, and thus pay these taxes as part of their purchase.
Local governments also collect property taxes, which are a percentage of the value of one’s home and fund services like schools, certain medical services, and police and fire stations. Immigrants—legal and unauthorized—pay these taxes directly if they own a home, or indirectly if they rent (clearly, landlords factor property taxes into rent).
- Unauthorized immigrants pay into Social Security via automatic payroll deductions, but they can never claim Social Security benefits because they are here illegally and because their Social Security numbers are fake. In 2005, it was estimated that undocumented immigrants paid about $7 billion per year in Social Security taxes that they will never be able to reclaim.
- The Tax Policy Center estimates that 78 percent of American households that earned less than $33,000 owed no federal income taxes in 2011. Many low-income taxpayers only paid marginal amounts if they did owe. Because of their low income levels, most illegal immigrants would naturally fall into either of these categories. Many illegal immigrants don’t file, however, because they fear deportation. And if they don’t file, they are never refunded money that was automatically withheld from their paychecks. When a refund is owed but not paid out, that’s free money for the government.
- Undocumented immigrants—and immigrants in general—are more likely to work in the informal or cash economy because these types of jobs are often the least desirable, most unstable and inconsistent, and lowest paid. Informal and cash jobs create big incentives not to claim cash income—undocumented immigrants and citizens alike find these incentives compelling. Most waiters and bartenders, for example, don’t claim and pay taxes on cash tips (or if they do, it’s usually just a small percentage). The high school student down the street usually doesn’t pay taxes on money earned from mowing your lawn or shoveling your driveway. Legally speaking, they’re supposed to claim this income.
- Something important to keep in mind: the incomes of migrants working in the informal economy are generally so low—less than $13,000 per year, according a recent UCLA study—that most would ultimately be exempt from paying income taxes or have extremely low tax liability even if they did file and claim cash income.
- As taxpayers, most of us are eligible for an array of social safety nets like food stamps and unemployment insurance. The 1996 Personal Responsibility and Work Opportunity Act barred illegal immigrants from receiving any welfare benefits except in medical emergencies. It also barred legal immigrants from eligibility for welfare benefits during their first 5 years in the country. So, no, illegal immigrants do not exploit welfare services quite simply because they are not eligible to exploit them.
- In Plyler v. Doe (1982), the Supreme Court ruled it unconstitutional to deny undocumented immigrants K-12 public education. Denying education would not only be crippling to the immigrants themselves, but would have negative implications for the rest of society. But regardless, by directly or indirectly paying property taxes, undocumented immigrants pay into public education. In general, immigrants benefit from police service, firefighters, national defense, parks, and other public goods. But again, the taxes they pay contribute to paying for these services.
- Fourteen states offer free prenatal and postnatal care to pregnant women who are the country illegally. Some state legislators justify these benefits as long-term cost-saving measures, others as being consistent with pro-life beliefs. Low-income women with children under 5 are also eligible for WIC benefits regardless of immigration status.
- American-born children of undocumented immigrants are eligible for benefits like Medicaid and food stamps. But it’s important to remember that the recipients of these benefits are children that the 14th Amendment has deemed full citizens of United States.
The Treasury Inspector General for Tax Administration estimates that unauthorized immigrants received $4.2 billion in child tax credits in 2010. There is currently no legal mechanism that bans unauthorized immigrants from child tax credit refunds (although they are banned from refunds related to the Earned Income tax credit). Read more on this issue at FactCheck.org and the Washington Post.
Are unauthorized immigrants a drain on the system?
- There’s no simple answer to this question because no one knows exactly how many people live and work in the U.S. illegally, exactly where they live, how much they pay in taxes, or the extent to which they benefit from public goods. This point underscores the difficultly of studying illegal immigration: the people involved do not want to be detected.
- Any so-called “hard numbers” you see on the costs or contributions of illegal immigrants are often little more than guesses based on imperfect estimates of the size and distribution of the illegal population. This is the case with two widely-cited (and highly unscientific) “studies” on this topic: one from the Institute for Taxation and Economic Policy and one from the Center for Immigration Studies.
- It’s important to understand how certain organizations make their guesstimates. Guesstimates published by anti-immigration organizations like the Center for Immigration Studies, for example, include public services rightfully used by the American-born children in calculating the costs of illegal immigration.
- At the federal level, some researchers believe that undocumented immigrants pay in more than they take out due to large and automatic contributions to Social Security that can never be claimed.
- Figures vary greatly at the state and local levels. Areas with higher concentrations of undocumented immigrants, for example, spend more educating and providing emergency healthcare to undocumented immigrants than areas with lower concentrations. But this is not because undocumented immigrants are out to evade taxes and milk the system —as we learned above, most pay sales, property, and income taxes automatically and are ineligible for the vast majority of social services. Rather, the reason undocumented immigrants may take out more than they contribute has mostly to do with their status as low wage earners. Even if they use the same amount of public services as wealthier households, low-income households (be they made up of citizens or immigrants) are generally a net drain on public finances because our progressive system requires them to pay less income tax and by virtue of having less purchasing power, they pay less sales and property tax.
If you have further questions, please leave them in the comments section and I’ll do my best to address them.