Tax Treatment of Undocumented Immigrants in California
By Gi Jung Nam and Ellen Swain1
Are undocumented immigrants required to pay taxes and how do they pay taxes? This is a question worth answering to correct misconceptions and to understand how undocumented immigrants comply with the tax laws. Undocumented immigrants are individuals who reside in the U.S. without government documentation showing that they are authorized to reside or stay in the United States (i.e., entered the U.S. without legal documentation or staying with an expired temporary visa.)2 According to the Center for Migration Studies, California was home to around 2.3 million undocumented immigrants in 2018.3 New American Economy, a bipartisan research and advocacy organization, reported using data for the 2018 year that undocumented immigrants paid a total of approximately $7 billion in taxes: $4.5 billion of federal taxes and $2.25 billion of state and local taxes.4
As discussed below, the current law requires undocumented immigrants to pay federal and state income taxes despite receiving fewer tax credits and benefits than other residents with a social security number (SSN). Undocumented immigrants are required to pay taxes because residency for federal and state income tax purposes generally does not consider the immigration status of the individual. The Internal Revenue Service ("IRS") issues an Individual Taxpayer Identification Number ("ITIN") to undocumented immigrants upon filing of an application and supporting documents. Both the IRS and the Franchise Tax Board ("FTB") allow undocumented immigrants to use the ITIN to file and pay their taxes.