Behind the Myth of Undocumented Immigrants Not Paying Income Taxes
Undocumented immigrants pay taxes at the grocery store, on monthly mortgages, and with every bi-weekly paycheck.
The misconception some people have is that they skip out on Uncle Sam when tax season comes around; that programs like the Affordable Care Act and the Deferred Action for Childhood Arrivals (DACA) give immigrants undeserved refunds when they should be paying federal taxes.
A study by the non-partisan Institute on Taxation and Economic Policy found undocumented immigrants paid $11.84 billion in state and federal taxes in 2012. Researchers suggested tax contributions would increase with President Obama's executive orders on immigrations, specifically program aimed at protecting students and their parents from deportation.
They concluded by saying state and local tax revenues would increase by $845 million once the programs are fully implemented.
"The fact is, undocumented immigrants already are paying billions in taxes to state and local governments," said Matthew Gardner, the organization's executive director, in an April 2015 press release. "And if they are allowed to work in the country legally, their state and local tax contributions will increase significantly."
Obama announced the Deferred Action for Parents of Americans (DAPA) and expanded DACA programs in November 2014. While those who qualified would be eligible for Social Security numbers and government benefits, they would also be held accountable for filing annual tax returns.
More importantly, it allowed some to claim refunds dating back three years - even if they didn't pay taxes or file returns in those periods - provided they meet income requirements. The Earned Income Tax Credit, in essence, gives undocumented immigrants with an SSN the same rights as U.S. citizens.
One of the reasons Republicans in 26 states contested President Obama's immigration reform effort is because they believe immigrants would take advantage of these loopholes, along with tax a break afforded under the Additional Child Tax Credit.
ACTC is a refundable credit available to working families with an earned income of at least $3,000. Tracking how many children a parent has, if any, is difficult for the IRS. ACTC recipients can easily take advantage of the system, but distinguishing whether one demographic abuses it more than another is near impossible.
Since 2012, the Obama administration has granted over 600,000 Social Security numbers to undocumented youths. Under DACA, they don't pay penalties for not enrolling in Obamacare because they aren't allowed the health insurance, but they do have to file federal taxes. It not only meets the DACA's tax requirement, it set good precedent once the individual applies for citizenship.
Residents with an Individual Taxpayer Identification Number (ITIN) have the same obligation. The Department of Treasury estimates three million ITIN holders filed federal taxes in 2011, adding up to 2.3 million filers and $4.2 million in distributions.
The Office of the Inspector General noted that the Affordable Child Tax Credit and the option to file years' worth of returns as a big reason for the influx of ITIN filers, some who may have filed fraudulent claims.
The flip side is in a Social Security Administration report detailing how undocumented residents who have paid billions of dollars in Social Security payroll taxes over the last decade stand to get little in return.
"While unauthorized immigrants worked and contributed as much as $13 billion in payroll taxes to the OASDI program in 2010, only about $1 billion benefit payments during 2010 are attributable to unauthorized work," the report read. "Thus, we estimate that earnings by unauthorized immigrants result in a net positive effect on Social Security financial status generally, and this effect contributed roughly $12 billion to the cash flow."
Social Security benefits are only given to retirees with a Social Security number, yet undocumented individuals see the tax on each paycheck. This could change if the Supreme Court sides with Obama's executive action.
Stephen Goss, chief actuary for the SSA, sent a letter to Wisconsin Sen. Ron Johnson last February indicating immigrants could see benefits as soon as 2017. Goss indicated that the number of beneficiaries will grow for the next 40 years, reaching about 695,000 people by then.
"For 2024, we estimate that the additional number of individuals receiving a benefit from Social Security as a result of the 2014 executive actions will be just 16,000, increasing the total number of beneficiaries by 0.02 percent," the letter read. "By 2050, we project the increase in beneficiaries due to the executive actions will rise to about 0.76 percent, and will decline thereafter as the affected populations age."
All of this is dependent on what SCOTUS decides this summer. Immigrants already pay taxes and claim refunds. The difference then will be in how many more, or less, people are legally allowed to file returns.
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