Do Undocumented Immigrants Pay Taxes?

It's a known fact that millions of undocumented immigrants (who lack lawful immigration status; also called "illegal aliens") live and, in some cases, work in the United States. That leads some Americans to question whether in flying under the legal radar, undocumented immigrants also manage to avoid paying taxes in this country. The answer in most cases is no: There exist no legal exemptions that would allow undocumented immigrants to avoid paying taxes in the United States, and in fact they do pay various sorts of taxes.

Tax obligations have little connection to immigration status, with one narrow exception: Some legal but temporary foreign visitors can avoid paying income taxes if they aren't considered "tax residents."

The upshot is that undocumented immigrants often not only pay taxes, but pay more than the normal share, by:

• paying income taxes through an employer
• filing annual federal and state income tax returns
• paying sales tax on items purchased in the United States, and
• paying property taxes.

We'll discuss each of these in more detail here.

Do Undocumented Immigrants Pay Taxes Through U.S. Employers?

Although many U.S. employers pay undocumented persons in cash or "under the table," others do not. That means they must follow U.S. payroll laws, which require them to withdraw a portion of each paycheck, both for federal income tax purposes and so as to deposit some of it into the Social Security and Medicare system. Employers normally arrange this based on the employee's Social Security number (SSN), which can introduce complications in the case of undocumented immigrants, but doesn't prevent tax collection, as discussed next.

Can Undocumented Immigrants Get an SSN?

For most undocumented immigrants, obtaining an SSN is impossible. A few received one during a time during when their presence in the United States was legal (but then their immigration status ran out). Some use false numbers that actually belong to someone else. Some, however, use an alternative number for tax purposes called an Individual Taxpayer Identification Number or ITIN. An ITIN is available to anyone in the United States, whether they're documented or not.

Do ITINs Offer the Same Benefits as SSNs?

ITINs let undocumented immigrants have employment-related taxes withdrawn from their paychecks, but comes with almost no other benefits. Getting an ITIN doesn't create any form of lawful immigration status, nor make them more employable, since it's no proof of status.

Unlike with a valid SSN, ITIN holders cannot eventually collect on their contributions by drawing on Social Security or Medicare benefits. The exception would be if they were eventually able to obtain lawful U.S. immigration status and thereby become eligible for Social Security and Medicare. In such a case, what they paid in via ITIN could be transferred into their earnings record and account. But such cases are relatively rare, given the limitations on realistic ways to obtain a U.S. green card for people who aren't rich, famous, or highly skilled or connected.

Are Undocumented Immigrants Required to File U.S. Income Taxes?

Nearly anyone earning income in the United States above a minimal level is required to file annual (or in some cases, quarterly) personal income tax returns on Form 1040 with the IRS. Although undocumented immigrants might be able to get away with not filing, many file tax returns regardless. And those who don't file lose out on the possibility of refunds, if they had tax withheld from a paycheck.

Why Would Undocumented Immigrants Choose to File Income Tax Returns?

The motivation for an undocumented person filing a 1040 with the IRS is, in many cases, to establish good moral character. This is partly in case the undocumented person ever is arrested and placed into deportation proceedings; and partly in case they ever become eligible to legalize their immigration status in some other way, perhaps due to a change in U.S. laws or a newly formed family relationship with a U.S. citizen.

In either situation, many forms of immigration of relief are discretionary or specifically require a good moral character showing in order to gain approval. (Cancellation of removal is one example, allowing certain undocumented persons in deportation proceedings to show long-term U.S. residence and good moral character and thereby be granted U.S. lawful residence.)

In fact, the IRS reports receiving millions of tax filings that use an ITIN annually. The widespread assumption is that most of ITIN-based returns come from undocumented immigrants.

Is It Risky for Undocumented Workers to File Income Tax Returns?

The IRS does not consider immigration enforcement to be among its roles. Therefore it doesn't share information with U.S. immigration authorities or transfer information regarding who appears to be in the United States illegally.

Undocumented Immigrants Pay Sales Tax

Let's not forget that income tax is not the only method by which governments tax their citizens. Sales tax is collected on certain types of purchases in 45 states and the District of Columbia. Many cities and localities also assess separate or additional sales taxes. Obviously, an undocumented immigrant would have to pay the same sales tax as anyone else.

Undocumented Immigrants Pay Property Tax

Over three million undocumented immigrants are reported to own homes in the United States. And all 50 states collect property taxes—which, as many homeowners complain about, can easily run into tens of thousands of dollars per year. Thus property taxes are a significant way in which undocumented persons pay taxes.

Total Tax Contributions by Undocumented Persons

When you add it all up, undocumented immigrants reportedly pay billions of dollars in federal and state taxes every year. In 2021, for example, the total was estimated at $30.8 billion. And because of the use of ITIN and false SSNs, many won't, unlike lawful U.S. citizens or residents, see any of it back in the form of Social Security retirement, disability, or medical benefits.