Do Undocumented Immigrants Pay Taxes?

TL;DR: Yes, undocumented immigrants do pay taxes. It is estimated that between 50% and 75% of the approximately 11 million undocumented immigrants in the U.S. pay federal, state, and local taxes. They contribute through payroll deductions, sales taxes, property taxes (directly if they own property or indirectly through rent), and federal income taxes through ITINs. Their tax contributions support public services and programs, even though they often cannot benefit from these services themselves.

Income Taxes

Individual Taxpayer Identification Number (ITIN)

Many undocumented immigrants use an Individual Taxpayer Identification Number (ITIN) to file income tax returns. ITINs are issued by the IRS to individuals who are not eligible for a Social Security number but need to report income for tax purposes. This allows them to:

  • Report their income and pay federal income taxes.
  • Claim tax refunds.
  • Apply for certain tax credits, such as the Child Tax Credit (CTC) and the American Opportunity Tax Credit (AOTC).

Sales Taxes

Undocumented immigrants contribute significantly to state and local revenues through sales taxes. Sales taxes are applied to:

  • Everyday Purchases: Groceries, clothing, household items.
  • Big-Ticket Items: Electronics, appliances, vehicles. Sales tax rates vary by state, and some states have local sales taxes in addition to the state rate.

Property Taxes

Undocumented immigrants contribute to property taxes in two ways:

  1. Directly: Homeowners pay property taxes directly to local governments.
  2. Indirectly: Renters contribute indirectly, as landlords pass property tax costs onto tenants through rent payments.

Property taxes fund local services such as public schools, police and fire departments, and infrastructure maintenance.

Economic Impact

Contribution to Public Services

Undocumented immigrants’ tax contributions help fund essential public services, including:

  • Education: Public schools and universities.
  • Healthcare: Emergency services and public health programs.
  • Infrastructure: Roads, bridges, and public transportation.

Economic Studies

Studies have shown that undocumented immigrants contribute billions of dollars annually to federal, state, and local taxes. For instance:

  • A 2017 study by the Institute on Taxation and Economic Policy (ITEP) estimated that undocumented immigrants pay approximately $11.74 billion in state and local taxes each year¹.
  • Undocumented immigrants with ITINs contribute to both federal and state income taxes. State income tax requirements vary, but ITIN filers in states with income taxes are required to report their earnings and pay taxes accordingly. It is estimated that between 50% and 75% of the approximately 11 million undocumented immigrants in the U.S. pay federal, state, and local taxes¹.
  • The Social Security Administration has reported that undocumented workers contribute about $13 billion a year in payroll taxes, while only withdrawing around $1 billion in benefits due to their ineligibility².

Key Takeaways

KEY TAKEAWAYS
  • It is estimated that between 50% and 75% of the approximately 11 million undocumented immigrants in the U.S. pay federal, state, and local taxes.
  • Many use ITINs to file income tax returns, contributing to federal and state revenues.
  • They significantly support public services and the economy through their tax contributions.
  • Despite their contributions, undocumented immigrants often cannot benefit from many services funded by these taxes.

    • References

    ¹ Institute on Taxation and Economic Policy (ITEP), “Undocumented Immigrants’ State & Local Tax Contributions,” March 2017
    ² Social Security Administration, “Effects of Unauthorized Immigration on the Actuarial Status of the Social Security Trust Funds,” 2013