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Do Illegal Immigrants Really Not Pay Taxes?

Posted on July 12, 2017 in

Illegal, or undocumented, immigrants live under the stigma that they work in the United States without paying federal taxes. While this may be true for some, studies show that this is the exception, not the rule. Estimates from the Social Security Administration show that nearly half of illegal immigrants in the U.S. workforce (around 3.4 million out of 8 million in the workforce) paid taxes in 2014. That’s billions of tax dollars from undocumented workers. If this is true, why does the idea that illegal immigrants don’t pay taxes still persist? It’s an unfortunate reality of today’s political climate. For more information, speak to a federal lawyer in Houston today.

Unclaimed Tax Money in the Earning Suspense File

Every year, billions of dollars come from unidentified taxpayers. When the SSA receives W-2 forms from employees with social security numbers that don’t match any on record, the administration puts it in the “Earnings Suspense File.” The tax documents will remain in this file until someone eventually claims them, with proof of identification. This is the only way the individual will collect retirement benefits from his or her years of work. Since undocumented immigrants have no way of proving that they earned these wages, they will likely never receive the retirement benefits they deserve.

The Earning Suspense File has tax documents that date all the way to 1937. It has record of taxes paid on almost $1.3 trillion in earned wages. While recent efforts by the SSA have matched about 171 million tax forms in the Earning Suspense File to their owners, millions still remain without anyone coming to claim them. The rightful owners of many of these documents are likely illegal immigrants. While these individuals could likely get away with not paying taxes, many obey the law and file tax forms – yet they will never be able to collect retirement funds from their earned wages.

Many undocumented immigrants use fake Social Security cards to work in the United States. Employers may or may not know about the false information upon hiring the immigrant. The employer will then submit a W-2 form to the SSA on behalf of the employee during tax time. The federal government won’t be able to match the Social Security number to anyone on record. The document will then go to the Earning Suspense File, and most of the money that technically belongs to the undocumented immigrant will be allocated to Social Security trust funds – eventually benefiting elderly Americans who are in the system.

The Use of Illegal Immigrant Tax Dollars in America

The half of illegal workers who do pay taxes help pay for public schools, road repairs, and local government services. They pay federal and property taxes like other residents, despite being unable to collect retirement benefits. Even undocumented workers paid “under the table” in cash may still pay taxes thanks to stipulations from the Internal Revenue Service (IRS) in recent years.

Immigrants can use an Individual Tax Identification Number (ITIN) to file a tax return on cash payments like other workers. The incentive to pay taxes may be eventual legalization – a history of paying taxes can help an undocumented immigrant receive legal immigration status. Should an illegal immigrant ever stand before an immigration judge, paying taxes can sway the decision in the immigrant’s favor.

Today, many undocumented immigrants are striving to receive tax refunds. If they are due a refund, it’s because they paid more in taxes than the law required. Undocumented or not, these immigrants can apply for an ITIN and apply for a refund. However, an ITIN does not legalize the immigrant’s status or give the person the right to Social Security benefits. For help with your taxes and/or refund as an undocumented immigrant, speak to a qualified Houston immigration attorney.