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Do Illegal Immigrants Pay Taxes?

Do illegal immigrants pay taxes? The short answer is, ‘yes.’ Read on to understand the many reasons why illegal immigrants pay taxes and how their tax dollars have a significant impact on the US economy.
Do Illegal Immigrants Pay Taxes
Do Illegal Immigrants Pay Taxes?
Tax records are proof of documentation of an immigrant’s work history in the country. This blog attempts to answer the question: Do illegal immigrants pay taxes?
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Have you ever wondered: Do illegal immigrants pay taxes? You’re not alone. A majority of people are doubtful of whether undocumented or illegal immigrants pay taxes to the US economy. The fact is that immigrants in the US contribute more than a whopping 492 billion dollars in total taxes, according to Boundless. 

Such reports tell us how half, or even three-quarters, of illegal immigrants pay taxes each year. Let us read this blog and understand why illegal immigrants pay taxes and how myths differentiate from actual statistics!

Do Illegal Immigrants Pay Taxes?

Yes, many illegal immigrants in the United States do pay taxes. Despite their lack of legal status, they contribute to the tax system in many ways.

Here’s a brief overview of how illegal immigrants may pay taxes:

  1. Income taxes: Many illegal immigrants pay income taxes. They pay them to the federal and state governments. They can use an Individual Taxpayer Identification Number (ITIN) to file their taxes. The IRS issues the ITIN. It ensures that individuals, no matter their immigration status, can pay taxes. They can do this even if they do not have a Social Security number.
  2. Sales taxes: Illegal immigrants pay sales taxes like any other consumer. They pay them when purchasing goods and services. These taxes are automatically included in the price of taxable goods and services.
  3. Property taxes: Illegal immigrants own property. They do this either directly or through renting. They contribute to property taxes. Renters typically pay property taxes through rent. Property owners pay them directly.
  4. Social Security taxes: Many work under assumed Social Security numbers or ITINs. The Social Security Administration has acknowledged something. It gets billions of dollars each year from people who pay into the system. But, they are ineligible for benefits.

Individual Taxpayer Identification Number (ITIN)

A report by the Institute on Taxation and Economic Policy (ITEP) says that “the best evidence suggests that at least 50 percent of undocumented immigrant households currently file income tax returns using Individual Tax Identification Numbers (ITINs), and many who do not file income tax returns still have taxes deducted from their paychecks.”

ITIN Usage

According to Bipartisan Policy Center highlights, the majority of filed tax returns with ITINs come from undocumented immigrants. 

How Are These Taxes Paid?

Most immigrants (both undocumented and illegal) filed taxes using ITINs instead of their Social Security Numbers.

Social Security Contributions

Undocumented immigrants in the US contribute to Social Security in billions. According to an estimate by the Social Security Administration, this payment is completed from tax deductions and has an estimated $12 billion in tax revenue.

Why Would Illegal Immigrants Pay Taxes?

Even though undocumented immigrants can get by without paying taxes, why are they paying millions every year?

Federal Tax Law Compliance

If immigrants pay taxes, they demonstrate adherence to federal tax regulations. Further, paying taxes is an immigrant’s legal commitment to the law, regardless of status.

Eligibility for Refunds

If immigrants issue an ITIN for taxes, they are eligible for refunds when owed without any questions being asked. 

Showcasing Moral Character

An immigrant can establish a ‘good moral character.’ This definition allows them to get potential benefits when seeking opportunities for legalization and work.

Work History and Presence documentation

Tax records are proof of documentation of an immigrant’s work history in the country. These records are vital for acquiring eligibility for immigration status. 

Income Taxes and Illegal Immigrants 

Let’s dedicate this section to understanding some facts and building a relationship between Income Tax and immigrants of the USA.

  1. According to a report by the Commonwealth Institute, 65% to 75% of undocumented immigrants pay state income tax. 
  2. People pay taxes because they work “on record” and have paychecks contributing to taxes. 
  3. Immigrants either apply for Individual Taxpayer Identification or pay taxes under false security numbers. 
  4. Almost half of the 11 million undocumented immigrants pay income tax, according to PoloGoldstein. 

Myths vs. Facts

Let’s clear up some commonly assured myths about undocumented immigrants and reveal related facts!

Myth: Immigrants do not pay taxes

Fact: Most immigrants pay taxes, including income, property, and sales tax. According to the National Academy of Sciences and other sources, they pay between $90 and $140 billion a year. 

Myth: Immigrants take job opportunities from native citizens of the nation.

Fact: Immigrant entrepreneurs create job opportunities for US and foreign workers. The Brookings Institution says that immigrants from China and India generated more than 19.5 Billion USD in 2000.

Myth: Immigrants drain the US economy.

Fact: Immigrants are responsible for filling jobs in key sectors and businesses. Immigrants contribute to the growing economy. 

Myth: Immigrants are given unnecessary benefits in the country.

Fact: Undocumented or illegal immigrants do not qualify for welfare, food stamps, Medicaid, and other public benefits. Proof of legal immigration is necessary for work and government assistance. 

Economic Impact of Illegal Immigrants Paying Taxes

Let’s take a look at the economic impact (positive or negative) that illegal immigrants might have had by paying taxes. 

  1. The country expects millions to file tax returns for each other via ITINs from illegal and undocumented immigrants. 
  2. Undocumented citizens can get potential access to Social Security and Medicare through payroll taxes, even though they are not initially eligible for such benefits. 
  3. Undocumented immigrants contribute to the taxes and add additional buyers and consumers to the US economy. They shop for goods and services, filling the required buyer gap. 
  4. If legal status becomes a part of an undocumented, tax-paying immigrant, one could see an increase in wages and taxes. This step would help them move to a formal and structured economy while benefitting the country. 

Conclusion

In short, undocumented or illegal immigrants pay taxes. The overall structure of tax payments for undocumented and illegal immigrants proves to be beneficial for the people in question and the US economy. Filing taxes is necessary and can lead to potential recognition and social status in the country. If you are planning to manage and pay your taxes, try Beem!

With Beem’s Tax Filing feature, you can file your taxes online and get the maximum refund with the best services. Get started with Beem now and move towards a journey of smooth tax filing!

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Team Beem brings you the latest in the world of personal finance to you. From tips and tricks on how to manage money to how to get cash for emergencies, Beem is your destination for all the information you need to be smart about your money.

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This page is purely informational. Beem does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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