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Explainer: Why Undocumented Immigrants in NJ Pay Taxes — a Lot of Taxes

According to recent estimates, New Jersey’s undocumented community paid $587 million in state and local taxes in 2014

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An estimated 500,000 undocumented immigrants are living in New Jersey, and, if national trends hold true, about two-thirds of them are working and paying at least some income and other taxes.

Many find it hard to believe, but immigrants who do not have full legal standing to be in the United States, may not be legally able to work, and do not even have a Social Security number still pay taxes.

In fact, the Institute on Taxation and Economic Policy, a nonpartisan think tank focused on tax issues, estimates that about half of the undocumented in the United States pay income taxes, mostly by using Individual Taxpayer Identification Numbers issued by the Internal Revenue Service.

Fitting in

Their situations are about as different as the individuals themselves, but for the most part, the undocumented are trying to fit in as much as possible, and that includes working and paying taxes.

According to ITEP, undocumented immigrants paid $587 million in state and local sales, income, and property taxes in New Jersey in 2014. Those who were eligible for the Deferred Action for Childhood Arrivals program — these are the young immigrants called “Dreamers” who were brought here as children by family members and face deportation beginning March 5 without congressional action — paid about $66 million in 2016.

The Pew Research Center estimates that about 8 percent of New Jersey’s workforce is undocumented. Some of those are legally permitted to work in the United States.

For instance, those Dreamers who applied for and received DACA approval got as part of that permission to work in the country and are holding down many different jobs. Other immigrants who came here from certain countries, mostly in Central America, and who have been granted Temporary Protected Status due to disease, conflict, or natural disaster in their home countries also are allowed to work legally in the United States.

But there are thousands of other undocumented immigrants who are also working. Some will work for cash in restaurants or doing landscaping or household work. Others are not being paid under the table. Some will get a job in a small business using a Social Security number that they obtained illegally, is fraudulent, or is invalid — there are employers, often restaurants or small shops, that will use whatever number is given and not check it. Still other immigrants own their own businesses.

Anyone who shops or owns or rents a home pays sales and local property taxes.

Paying income tax — voluntarily

But millions of others choose to pay income taxes using Individual Taxpayer Identification Numbers.

The IRS issues ITINs to people, regardless of their immigration status, as a way to allow those ineligible for a Social Security number to pay taxes.

Nationally, Pew estimates that of the nearly 11.1 million undocumented immigrants estimated to be living in the United States, about 8 million were in the workforce in 2014, and ITEP estimates that the undocumented paid $11.7 billion in state and local taxes in 2014. The conservative Heritage Foundation estimated that the average undocumented immigrant household paid $10,334 in taxes in 2010.

Americans who hate paying their taxes and look for deductions to try to minimize the amount they owe may find it hard to believe that anyone who does not have to pay taxes would do so.

Many do so on the advice of an immigration lawyer or another immigrant. Paying taxes is a way of fitting in here and following whatever laws and rules of the United States that they can. Most also are hoping the payments will help them should they be stopped by federal immigration officials or should Congress enact an immigration reform law that would provide an amnesty similar to the 1986 reform law or some path to citizenship, thinking that having paid taxes might give them a leg up. Federal records show that the number of people filing a tax return with an ITIN doubled to about 4 million over the past decade, as Congress was considering several immigration reform proposals that would give citizenship to those who had paid all back taxes owed.

Others, though, fear that getting an ITIN and paying taxes could help federal officials locate them and so choose not to pay.

Ineligible for benefits

Besides the hope of some future amnesty, there is little financial reason for the undocumented to pay taxes. They are not eligible for most benefits, including unemployment, Social Security, and Medicare, although they can receive a refund on income taxes paid.

“Some people file their taxes every year and they are undocumented,” said Johanna Calle, director of the New Jersey Alliance for Immigrant Justice. “They pay taxes, but they can’t get unemployment benefits, they can’t get Social Security benefits.”

The Social Security Administration keeps a file of false numbers and the earnings credited to them. In 2013, the SSA estimated that as many as 1.8 million immigrants used improper Social Security numbers to work in 2010. The administration gets about $12 billion a year in payments from the undocumented.

New Jersey Policy Perspective, a progressive think tank, estimates New Jersey will lose at least $19 million a year if DACA is not reauthorized; those currently protected by it will lose their official work authorization, wind up taking jobs that pay lower wages, and will be less likely to file income tax returns.

Should all those eligible for DACA wind up deported, the state would lose all $66 million these young people currently pay in taxes.

If Congress were to pass a Dream Act giving those eligible for DACA a path to citizenship, New Jersey would likely get a tax boost of $41 million, since these immigrants would be more likely to advance in their careers, buy a home or start a business, and all would be paying taxes, according to NJPP.

It’s unclear how much in total would be paid in taxes if all those who are undocumented across the country were given legal status, but the ITEP report estimates that if that happened, states and localities would get a windfall, with newly legal immigrants paying an additional $2.1 billion in taxes in total to the states and communities where they live.

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