Immigration & Taxation

One of the many misconceptions around immigration is that undocumented immigrants do not pay taxes and abuse government safety nets such as Medicaid and Social Security. Evidence actually suggests that at least 50 percent of undocumented immigrant households currently file income tax returns using Individual Tax Identification Numbers (ITINs), and many who do not file income tax returns still have taxes deducted from their paychecks. Immigrants also pay sales taxes and property taxes —even if they rent— just like everyone else in the United States. This results in undocumented immigrants paying billions of dollars each year in taxes. In fact, several studies have found that undocumented immigrants would earn much more, and therefore pay much more in taxes, if they had temporary or permanent legal status

Source:  The American Immigration Council; Institute on Taxation and Economy Policy 

Immigrants' Economic Power

Immigrant households contribute billions of dollars in federal income, state, and local taxes nationwide and hold a total spending power of about $1.3 trillion. This signifies the large economic support immigrants provide to local communities as both consumers and taxpayers.

Source: New American Economy

Taxes Paid by Immigrants

The Individual Taxpayer Identification Number (ITIN) is a tax-processing number issued by the Internal Revenue Service (IRS) to people, such as undocumented immigrants, who are not eligible for a Social Security number. Filing taxes helps immigrants create a paper trail to show when they entered the country and how long they’ve been contributing tax dollars. Many immigrants hope it will help them get legal status one day, as has happened in past reform efforts. ITINs not only allow for undocumented immigrants to pay taxes, but also for the IRS to bring in billions of dollars the federal government otherwise would have no way of collecting, thereby building the tax base. 

In 2015 the IRS reported receiving 4.4 million income tax returns from workers who don’t have Social Security numbers, including a large number of undocumented immigrants, and these returns resulted in payment of $23.6 billion in income taxes to the IRS. These numbers do not include workers who paid taxes with fake Social Security numbers on their W-2 forms, which is also common. 

Source: American Immigration Council; IRS

Use of Safety Nets

Another related misconception about immigration is that immigrants not only abuse social safety nets, but also that they don't contribute to these safety nets in the form of paying taxes. In reality, both documented and undocumented immigrants contribute more into public benefit programs than they consume. According to the Institute on Taxation and Economic Policy (ITEP) undocumented immigrants contribute an estimated $11.74 billion to state and local economies each year. Even so, most immigrants, including undocumented and DACA-eligible immigrants, are ineligible for safety net programs such as Medicaid, the Children’s Health Insurance Program (CHIP), the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (cash assistance), and Supplemental Security Income (SSI). 

Immigrants are less likely to consume welfare benefits and, when they do, they generally consume a lower dollar value of benefits than native‐​born Americans. 

Under the provisions of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, ITIN holders are not eligible to receive stimulus payments, even if they filed their 2019 federal tax returns.

Source: National Immigration ForumCato Institute

The average value of welfare benefits per immigrant was about $3,718 in 2016, about 39 percent less than the $6,081 average value of welfare benefits per native. The average immigrant consumed $6 more in cash assistance, $7 more in SNAP benefits, and $98 more in Medicaid than the average native did. However, the average immigrant consumed $56 less in SSI, $610 less in Medicare, and $1,808 less in Social Security retirement benefits than the average native in 2016 — more than compensating for their overconsumption of cash assistance, SNAP, and Medicaid.

Cato Institute

Potential Tax Contributions with Legal Protected Status

Extending legal status to undocumented immigrants would enable them to get better jobs and earn higher incomes, which would increase the amount they pay in taxes. While about half of undocumented immigrants file taxes currently, nearly all immigrants with legal status would pay into the tax system, thereby increasing tax revenue at all levels of government. ITEP estimated that if all undocumented immigrants had legal protected (LPR) status today, their state and local tax contributions would be $2.1 billion higher than they are currently—for a total of $13.8 billion.

Source: American Immigration Council

About the Data

The following publicly available data were used:

• The American Immigration Council, "Adding Up the Billions in Tax Dollars Paid by Undocumented Immigrants"

• The Institute on Taxation and Economy Policy, "Undocumented Immigrants’ State & Local Tax Contributions" 

• New American Economy, "Immigrants and the economy in: United States of America"

• The American Immigration Council, "The Facts About the Individual Taxpayer Identification Number (ITIN)"

• U.S. Internal Revenue Service (IRS), "Individual Income Tax Returns, 2015"

• The Institute on Taxation and Economy Policy,  "Undocumented Immigrants’ State & Local Tax Contributions"

• National Immigration Forum, "Fact Sheet: Immigrants and Public Benefits"

• The Cato Institute, "Immigration and the Welfare State: Immigrant and Native Use Rates and Benefit Levels for Means‐​Tested Welfare and Entitlement Programs"