Work Authorization for Undocumented Immigrants Would Improve Tax Collections, Analysts Say

Undocumented immigrant workers who do not possess a Social Security number but still pay taxes on their income or property receive fewer benefits than citizens despite a similar share of tax contributions, a new study shows.

According to a July 30 report from the Institute on Taxation and Economic Policy (ITEP) — a self-described non-profit, non-partisan tax policy organization — undocumented immigrants paid a combined $96.7 billion in taxes in 2022 at the federal, state, and local levels. Of that amount, $59.4 billion went to the federal government, including $32.3 billion in federal social insurance taxes (like Social Security, Medicare, and unemployment insurance taxes) and $19.5 billion in federal income taxes.

The report’s three authors, Research Director Carl Davis and senior analysts Marco Guzman and Emma Sifre, estimated that also in 2022, public services received $8.9 billion in additional tax revenues from undocumented immigrants, who each paid a projected $8,889 in federal, state, and local taxes. For the same year, the report read that undocumented immigrants contributed 26.1% of their incomes to tax, which is about on par with the 26.4% mark for the median income group of the overall national population.

Despite contributing similar shares, the Tax Code is “harsher” on undocumented immigrants compared with legal residents, the report said. “They often pay taxes that are dedicated to funding programs from which they are barred from participating because of their immigration status. In addition, undocumented immigrants and the citizen members of their families are ineligible for the federal Earned Income Tax Credit (EITC).” Further, under the Tax Cuts and Jobs Act of 2017, only taxpayers with a Social Security number can claim the Child Tax Credit.

The ITEP authors argue that granting work authorization to undocumented immigrants would lead to higher tax contributions. “First, income tax revenues would increase because legal status would lessen barriers to complying with existing income tax laws,” they wrote. Next, expanding “access to job opportunities and higher-level education would provide immigrants with the opportunity to earn substantially higher wages which would have the effect of raising taxable earnings, consumption, and property ownership.”

Doing so would bring in an extra $40.2 billion in tax contributions from undocumented immigrants for a total of $136.9 billion, ITEP claimed. Most of this increase ($33.1 billion) would be attributable to higher federal tax payments, while the rest would come from state and local payments.

At the state and local levels, undocumented immigrants contributed “$15.1 billion in sales and excise taxes, $10.4 billion in property taxes, $7.0 billion in personal and business income taxes, and $0.5 billion in other taxes to the states in which they live,” the report found. It added that six states raised tax revenues in excess of $1 billion from undocumented workers in 2022, accounting for 64% of all state and local tax collections that year.

“Those states are California ($8.5 billion), Texas ($4.9 billion), New York ($3.1 billion), Florida ($1.8 billion), Illinois ($1.5 billion), and New Jersey ($1.3 billion),” ITEP said.