VERIFY – YOU’VE GOT QUESTIONS, WE’LL FIND ANSWERS
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With the deadline to file your taxes looming, we thought it would be the right time to tackle a question we get keep getting. Do people living in the country illegally pay taxes?
WHAT WE FOUND
First things first, it’s important to know that all numbers on people in the country illegally are estimates.
We used numbers from the federal government because think tanks and other groups often support either mass amnesty, mass deportation, or something in the middle.
We also want to make it clear we’re not addressing the costs of educating, incarcerating or providing medical care to people in the country illegally or their children.
Whether the total economic costs of illegal immigration outweigh their contributions is a complicated question. We’re working on an answer for a future Verify report.
Finally, we’re confining this to income taxes for workers. There are many other kinds of taxes (sales taxes, gasoline taxes, property taxes, etc) but we are only looking at income taxes.
Employers withhold taxes from every worker’s paycheck for the social security fund, whether they have legal status in the U.S. or not.
Unauthorized immigrants will pay about $13 billion into social security this year that they’ll never be eligible to receive in the form of social security benefits.
We got this number by doing a little math after reading an actuarial note released by the Social Security Administration.
The agency estimated that in 2010 an unauthorized immigrant population of 11.2 million contributed $12 billion to the social security fund.
Today, about 11.1 million people live in the country illegally.
So, we adjusted for the smaller pool of people, tossed in a little inflation and reached an estimate of $13.28 billion.
Pro-immigrant groups use the SSA’s number, but a conservative lobbying group called the Federation for American Immigration Reform says it was $7 billion in 2012.
FAIR doesn’t count the money employers contribute.
Either way, people in the country do pay social security taxes that they never get back. This, as you’ll see, is one of the things keeping social security afloat.
The IRS estimates the amount of federal taxes paid by people in the country illegally by looking at the money in something called the earnings suspense file (these are taxes in addition to social security taxes).
The earnings suspense file is where W-2s go when the social security number doesn’t exist or doesn’t match the name of the person on the form.
About 97 percent of this money likely comes from people who aren’t authorized to work in the U.S.
That’s backed up by Congressional testimony in 2006 from IRS commissioner James Lockhart.
He also testified that from 1996 to 2003 undocumented immigrants paid a total of about $50 billion in federal taxes. That breaks down to about $6.25 billion per year.
FAIR’s researchers think the number is closer to $1.65 billion a year.
But if we adjust the IRS commissioner’s number to reflect today’s population and adjust for inflation, the IRS estimate would be closer to $8.8 billion today.
UNDER THE TABLE
A lot of the questions we get include the issue of people being paid in cash and how that lets them avoid paying taxes.
That happens in some cases, but not always.
The IRS has a way for people who are paid under the table to pay taxes. It’s called an Individual Tax Identification Number or ITIN.
People using these numbers file a return like anyone else.
Why would someone do this?
Well, creating a history of paying taxes helps boost your chances to become a legal citizen if that’s your long-term goal. In the meantime, the IRS doesn’t share your identity with immigration officials.
In 2010, the IRS reported $870 million in revenue from people using these tax identification numbers.
What about getting a good old fashioned tax refund from the IRS? How does that work for workers who don’t have legal status?
People in the country illegally may try to file tax returns different ways. If they file using a fake social security number, the IRS knows it isn’t them, and the agency won’t issue a refund, even if they were due a refund based on their income. These social security numbers are usually just invented, not necessarily stolen from real people.
It’s also possible for someone in the country illegally to file using the ITIN number referenced above. That makes it much more likely for these taxpayers in the country illegally to get a refund, again if their income and withholding would normally result in such a refund.
Taxpayers with children who are U.S. citizens (a common reality for parents who are in the country illegally but who have U.S. citizen children) can actually get an even bigger refund than they pay in federal income taxes, based on child tax credits, just like U.S. citizen taxpayers with the same situation.
The Office of the Inspector General estimates that the federal child tax credit sends back $4.5 billion to taxpayers in the country illegally.
It’s almost impossible to know the net result of all this.
Some people in the country illegally get tax refunds, some don’t get any. But none of them gets social security retirement benefits, even though they’re paying social security taxes.
ADDING IT ALL UP
Figuring out something as seemingly simple as what a group of people paid in federal income taxes isn’t easy when you don’t how many people you’re counting or what they earned.
Our estimate is that people in the United States illegally will pay about $22 billion in U.S. income taxes to the federal government for 2016. The only hard number we have for what people in the country illegally will get back is $4.5 billion for the child tax credit, although it’s likely they also receive more in refunds.
But again, more than half that $22 billion is in the form of social security taxes, which they never get back in the form of social security retirement benefits.