It’s safe to say that tax day is one of the most dreaded dates on the calendar. Even if you’re lucky enough to get a refund check in the mail, filing your taxes each year can be a major headache.
Many people take a little solace in knowing they’ll be receiving a portion of their taxes back in some way or another over time. For most Americans, that’ll be in the form of Social Security income and Medicare benefits. For others, it may include special programs for low-income families, grants to pursue higher education, or disability income.
Few of these tax-funded benefit programs are available to undocumented immigrants, but that doesn’t stop millions of undocumented immigrants across the United States from paying taxes.
That’s right — contrary to what you’ll hear in the media, undocumented immigrants can and do pay taxes. In fact, you may be surprised to hear how many undocumented immigrants pay taxes, and how much those tax contributions boost the American economy.
How Many Illegal Immigrants Pay Taxes?
First of all, let’s address the fact that income taxes aren’t the only way people in America pay taxes. There’s also sales tax, property taxes, and a number of state and local taxes many of us pay without even knowing (like special taxes on alcohol and cigarettes).
Even if an undocumented immigrant doesn’t pay income taxes, you can’t avoid these everyday taxes. A 2016 report from the Institute on Taxation and Economic Policy (ITEP) found that undocumented immigrants were responsible for $7 billion in sales taxes and $3.6 billion in property taxes. That’s $10.6 billion in taxes from undocumented immigrants that directly benefits the American economy!
What about income taxes? It’s a little more challenging to find data on this area, but the same 2016 report from ITEP indicates that there were $1.1 billion in state income taxes paid in 2013 by undocumented immigrants. Most of those funds came from states with higher illegal immigrant populations, such as California, New York, New Jersey, Texas, Florida, and Illinois.
As for federal income taxes, the American Immigration Council estimates that “at least 50% of undocumented immigrant households currently file income tax returns using Individual Tax Identification Numbers.”
That’s an interesting figure, as it can be interpreted two ways. It’s great that over half of the undocumented immigrants in the United States pay income taxes, but on the other hand there’s clearly a large number of undocumented immigrants who either don’t know how to file or simply choose not to file income taxes.
Why Illegal Immigrants Should Pay Taxes
Before we dive into how undocumented immigrants can pay income taxes, let’s start with why you should. After all, many Americans are already under the false impression that undocumented immigrants don’t pay taxes, so why should you?
That argument may actually be one of the best reasons for undocumented immigrants to pay their taxes — to finally eliminate the misinformation. When it becomes abundantly clear that undocumented immigrants pay their taxes and positively contribute to the American economy, it may grease the wheels in Congress to pass more pro-immigration legislation. So, you could look at paying your taxes as a way to positively influence immigration legislation in the long run.
In the short run, the most important reason for undocumented immigrants to pay their taxes is because it seriously improves their immediate chances of being granted legal immigration status. Whether you’re applying for a visa, a green card, or naturalized citizenship, an established record of paying your taxes establishes good moral character. Considering many proposed immigration bills include provisions for paying back-taxes, it also ensures you won’t have to pay a lump sum tax payment when you’re applying for legal immigration status.
Another reason undocumented immigrants should consider paying income taxes is because there’s a chance you may actually benefit from them one day when you become a naturalized citizen. When a naturalized citizen applies for Social Security benefits, they can include their earnings from before they became a citizen as long as they paid their taxes.
How Do Illegal Immigrants Pay Taxes?
Now that you’re convinced it’s a good idea to pay your taxes, how do you do it? The long answer is you may need to speak with an immigration attorney or an accountant who specializes in immigration and tax law, but the short answer is you can file income taxes with an Individual Tax Identification Number, or ITIN.
ITINs are issued by the Internal Revenue Service (IRS) to foreign nationals and individuals who don’t qualify for a social security number. Immigration status is irrelevant, so ITINs are available to undocumented immigrants. An ITIN does not provide work authorization or eligibility for Social Security benefits, but it does allow you to pay your taxes without risking alerting immigration officials to your immigration status.
The IRS estimates that over three million people file taxes with ITINs each year. ITINs are responsible for over $870 million in income taxes, and over $9 billion in payroll taxes each year.
Those figures reflect federal income taxes, but keep in mind that ITINs may also be used for state income taxes. In fact, if your employer withholds a portion of your paycheck each month, there’s a chance that applying for an ITIN and filing a proper state tax return may result in a state tax refund.
Potential Punishment and Penalties of Not Paying Taxes
In the end, the greatest form of punishment for an undocumented immigrant who don’t pay taxes is they will have a difficult time applying for immigration benefits. Immigration officials aren’t very sympathetic to tax evasion, so you may be required to pay back taxes, too — making an already expensive process even more difficult.
Assuming you become a naturalized citizen one day, you’ll also lose out on the possibility of claiming Social Security benefits from the years you worked in the United States but didn’t pay taxes. Depending on how long you’re in the country, that can be a significant loss.
As for legal immigrants and naturalized citizens, the IRS imposes a few penalties for failure to file and pay taxes. Failure to file income taxes results in a 5% penalty applied each month for up to five months. Failure to pay your taxes results in a variable penalty of 0.25% – 1% per month until the tax is paid in full.
Help for Illegal Immigrants Paying Taxes in Arizona
Taxes are a complicated matter in the United States, and they’re even more complicated for immigrants. Whether you’re considering applying for an ITIN or curious how paying taxes can impact your immigration application, it helps to work with an experienced immigration attorney.
As an immigration attorney, Pace Rawlins and the JacksonWhite Immigration team can help you apply for a ITIN so you can file both federal and Arizona state taxes. To receive a confidential consultation regarding how to file your taxes as an illegal immigrant in Arizona you can give us a call or fill out a form online.
Call our Immigration team at(480) 626-2388 to discuss your case today.