Do Undocumented Immigrants Pay Taxes?

Combat ignorance. Read.

There is a very popular myth that the immigrants living in the US without papers are syphoning off resources that could be used to benefit American citizens.   At the center of this myth is the assumption that the undocumented don’t pay taxes. In this article, we are going to examine the realities of taxes and the undocumented.

First of all, everyone living in the US is paying taxes, whether they have legal papers or not. There are a lot of different kinds of taxes. Lower income people pay a significantly larger percentage of their income on taxes than higher income people in terms of the flat taxes, property taxes, and often income taxes.

In addition, there are many layers of taxes. There are the taxes we pay directly, like income taxes, or taxes on a six pack of beer, or the federal and state taxes we pay on a gallon of gas every time we fill up the gas tank. And then there are taxes we pay indirectly, such as the cost of the taxes on the gasoline needed to transport our fruit from the farm to the supermarket, or the real estate taxes paid by that supermarket, or the electricity taxes paid by the factory that built the truck that transported that fruit to the supermarket. All of these taxes end up being added on to the costs of all goods and services that we purchase. Because it would be so difficult to calculate these indirect tax contributions, this article will focus on taxes paid directly by undocumented immigrants, and the only exception will be the percentage of rent paid towards the property owners’ real estate taxes.

So let’s break down the tax contributions into three broad categories and take a look at each.

Flat taxes

  • What are they? Flat taxes include sales taxes, taxes on phone usage and utilities, “sin taxes” on items such as beer or fast food. Flat taxes hit the poor the hardest.
  • How do undocumented immigrants pay these taxes? Just like everybody else. You pay your electric bill and your phone bill and your gas bill. You take the kids to McDonalds. You drink a bottle of beer on a hot day, or buy a pack of chewing gum. You fill up your gas tank. You contribute every time you purchase goods or services that are taxed.
  • What kind of $ are we talking about? A lot! Our tax system is complicated, and sales taxes vary greatly by state, both in terms of the tax rates, and which items are taxable. There is no cumulative data on all types of flat taxes from all states. But here are a few examples of revenue generated by flat taxes.
    • Sales taxes in 2012 for the 50 states came out to just under $243 Billion, and “selective sales taxes,” which include vice taxes, brought in another $132 Billion that year. [1] Sales taxes vary wildly, state by state, both in terms of tax rates, and the items that are taxed. But just like the rest of us, undocumented immigrants contribute billions to our economy via sales taxes. And like other low income families, the undocumented pay a disproportionate percentage of their income on flat sales taxes. In New York, for example, a bank executive might need to work 3 minutes per year to pay the taxes on her annual purchases of tampons, while the woman who sells her a smoothie from a street cart might need to work an hour and a half per year to pay the annual taxes on her tampons. Likewise, the average tax burden of putting 100 gallons of gas into your car would be about $45. For someone earning $250,000 per year, that would be about 20 minutes work, (before all the other tax withholdings.) Someone earning the current minimum wage of $7.25 per hour would need to work over six hours to earn the pre-tax dollars to pay the taxes on that filling up the gas tank the same number of times.
    •  Utility Taxes are among those pesky little items and fees and surcharges that you find on your monthly bills. Maybe you get mad when you see them. Maybe you just ignore them. But these “little” fees really add up. For example, New York State collects $1.6 BILLION annually from New Yorkers’ electric bills. [2] Undocumented New Yorkers make up about 3%-3.8% of the state’s population, and contribute millions of dollars towards the state’s revenue by simply paying their electric bills and phone bills. Multiply this by 50 states. Add in hidden taxes on phone bills and delivery fees for heating fuels and the countless other charges, and we have more hundreds of billions of dollars in revenue. And the undocumented pay the same amount towards these taxes as US citizens in similar income brackets.

Property taxes

  • What are they? Property taxes represent a huge percentage of local revenue. In fact, most localities generate about 40% of their revenue from property taxes. Property taxes are paid directly by property owners. Renters pay property taxes indirectly as part of their rent. Consumers pay commercial property taxes indirectly as a percentage of the purchase price of goods and services.
  • How do undocumented immigrants pay these taxes? Most undocumented immigrants rent, rather than own their residences. The property tax for their residences a portion of their rent.   Their landlord, of course, gets to enjoy federal income tax breaks on the percentage of income paid in property taxes, which is a benefit renters do not enjoy. And like all consumers, the undocumented pay commercial property taxes indirectly every time they purchase goods or services. It is important to note that property taxes are the primary funding sources for most local school systems. That is why rich districts tend to have well-funded school, while lower income communities tend to have schools lacking basic resources. However, the undocumented renter is contributing the same amount via property taxes towards her child’s school as the American citizen who lives next door.
  • What kind of $ are we talking about?
    • For a family renting a modest two bedroom home in Newark NJ, a whopping $9,436 of their annual rent goes to paying their landlord’s property taxes. In El Paso Texas, where rents are significantly cheaper, a family renting a modest home would pay about closer to $3000 per year towards their landlord’s real estate taxes. Check the footnote to find the tool to let you calculate how much they would pay in your neighborhood. [3] Undocumented families pay rent, and contribute to the tax revenues in the communities in which they live.

Income Taxes

  • What are they? Income taxes are those taxes that come right out of your paycheck. They include federal income taxes, as well as state and local taxes. For the purposes of this article, we will also include FICA and Medicaid contributions, which are not really taxes. The undocumented, of course, are not eligible to receive social security or Medicaid. However, they pay billions into those systems.
  • How do undocumented immigrants pay these taxes? You might be surprised to learn that the IRS issues documents known as Individual Taxpayer Identification Numbers (ITIN) to anyone who wants one. They look just like social security numbers, and although it is not technically legal to work with an ITIN, many undocumented immigrants do. Then their paychecks have the same withholdings that your paycheck has, including local, state and federal taxes, as well as FICA and Medicare. There are other undocumented immigrants who work using false social security numbers, and also have withholdings.
  • What kind of $ are we talking about?
    • According to the Social Security Administration, unauthorized immigrants paid $12 BILLION towards OASDI (old age, survivor and disability insurance), otherwise known as social security in 2010.[4]
    • Undocumented immigrants paid about $11.8 billion in state and local payroll taxes in 2012. [5] The Institute for Taxation and Economic Policy, (ITEP) estimates that full immigration reform would increase that amount by approximately $2.1 billio
    • How much do undocumented immigrants pay in federal income tax? I looked, and honestly couldn’t find any data. But assuming that it is almost double the amount of social security, it is safe to say about $20-27 billion per year.

So, the next time you hear someone saying that the undocumented don’t pay taxes, please take a moment to correct them. The next time you hear about how the undocumented are draining our economy, please tell them that without immigration, the US would have negative population growth. That means that without immigration, there would not be enough people paying into social security for you or your kids.

The undocumented pay taxes. They pay flat taxes and real estate taxes and many pay local, state and federal taxes. And social security, and Medicare. Hundreds of billions of dollars in taxes every year. And if they were able to work legally, those who currently have no option but to work under the table, would be paying many billions of dollars more.

Can you imagine what this nation would be like if these 11 million human beings were suddenly removed from our economy? From our neighborhoods?


Tired of reading about numbers?  Please read about the human beings behind the numbers here:

Mahmood’s American Dream

[otw_shortcode_button href=”” size=”medium” icon_position=”left” shape=”square”]Portraits of the Undocumented in America Part 2[/otw_shortcode_button]