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“The Price That We Pay” – Undocumented Immigrants and Taxation
Editor's Note: This is the first installment of a three-part series on immigration. Rita's house on the South Side of Chicago could be any Mexican-American family home - In the corner a big "I love you

“The Price That We Pay” – Undocumented Immigrants and Taxation

Editor's Note: This is the first installment of a three-part series on immigration. Rita's house on the South Side of Chicago could be any Mexican-American family home - In the corner a big "I love you

Editor’s Note: This is the first installment of a three-part series on immigration.

Rita’s house on the South Side of Chicago could be any Mexican-American family home – In the corner a big “I love you, Mom!” balloon sags against the wall, a relic of Mother’s Day a couple of weeks ago. On the coffee table sits an orange Brain Quest game, and hanging on the wall is a large, framed photo of Rita’s eldest daughter, resplendent in her white quinceanera dress. As many people do, she keeps her tax statements for each year in separate, pristine manila envelopes, away from the clutter of the living room and the curious nose of the family’s chihuahua.

Rita, a 47-year-old Hispanic woman, may in fact be the blueprint for a growing number of Mexican-American immigrant lifestyles: Rita is an undocumented immigrant, and a taxpayer.

According to her 2009 tax return, the divorced mother of three, who asked that her last name not be used for fear of prosecution, made $18,295.68 of which $1,170.41 was withheld for Social Security tax and $273.73 for Medicare – benefits that Rita is unlikely to ever see.

A poll conducted in 2006 by ABC News and The Washington Post found that a third of all Americans said their biggest objection to undocumented immigrants is their use of “more public services than they pay for in taxes.” Many of these same people oppose comprehensive immigration reform for this reason, and among conservative pundits such as Bill O’Reilly the notion that undocumented immigrants pay tax at all has been derided as “crap.”

But reports by the Congressional Budget Office and the Social Security Administration confirm that undocumented immigrants in fact pay many different types of taxes, including sales tax, property tax, Social Security tax and income tax.

Francine Lipman, a professor of tax law at Chapman University, says the disinformation about the tax contributions of undocumented immigrants can be attributed to both “confusion about the system generally and . . . that we have a history of scapegoating people when times are tough, and maybe also when times are good.”

Lipman’s research in her 2006 report, “The Undocumented Immigrant Tax: Enriching America from Sea to Shining Sea,” investigated the position of the low-income, undocumented person in the American tax system.

“Most of our tax system is seamless,” Lipman went on to say, explaining that therefore, “folks don’t think about the taxes they pay just for consuming.”

Along with sales tax, which Lipman says immigrants pay whenever they spend money – and because they have low-income jobs, a high proportion of their salary goes to sales tax because they spend it on taxed products such as food and property – undocumented immigrants also file tax returns.

Lipman first discovered this when holding a tax clinic for low-income taxpayers. “My students were helping,” said Lipman, “and all of the sudden they said Professor Lipman, this gentleman has all these Social Security numbers – and this other number. And that’s how I discovered it.”

This “other number,” which Rita and other immigrants who do not have a valid Social Security number use to file taxes, is the nine-digit individual taxpayer identification number, or ITIN.


The ITIN was first created in 1996 in order to allow the Internal Revenue Service to track the tax returns of individuals who are ineligible for a Social Security number, but who have US-source incomes. With this number, an individual who sends the IRS documents that prove their foreign status and identity can file tax returns and receive refunds.

Despite the lack of definitive numbers, it is believed that most taxpayers who use ITINs are undocumented immigrants, though ITINs are also issued to foreign nationals who make a living from US-based businesses but may not reside in the country. According to the New York Times, about 15 million ITINs have been issued by the IRS since 1996.

The individual taxpayer identification number can also be used to open up bank accounts, to amend returns filed in the past with a false Social Security number, or to file taxes for income earned under a false Social Security number, making them particularly flexible for undocumented immigrants who usually work off the books or may use false Social Security numbers.

According to Robert Palacios, the director of tax services at the Center for Economic Progress, about five percent of clients the Center assists in the state of Illinois pay their tax returns with ITIN numbers.

Of the 33,000 clients for whom the Center helped fill out their tax returns in 2009, about 1,400 of them did so with an ITIN number. Another 686 had a spouse who had an ITIN. “I think its pretty impressive that people who are sort of living in the shadows, so to speak, in other aspects of their lives are perfectly willing to pay their taxes,” said Palacios, who has been helping tax payers file in Chicago since 1997.

The manila envelopes in which Rita keeps her tax information display the sticker of the company that helps her file taxes – a firm in downtown Chicago that she pays $30 per filing. Rita has been in the country as an undocumented immigrant since August 1993, when she left the poverty of her small, rural town in the state of Guanajuato, Mexico to join her husband, who was already living and working in Chicago. She began filing taxes in 1995, soon after she began her job at the plumbing parts factory where she still works.

On her tax form, Rita files with one dependent – her 2nd grade, American citizen son. But when she crossed the border in a van, hiding under a fold-out couch in the back, she brought two others – her five-year-old daughter and three-year-old son. Now respectively 23 and 21, Rita’s son and daughter, along with herself, are part of the estimated 11.9 million undocumented immigrants living in the United States, according to a 2008 report by the Pew Research Center – five percent of the nation’s workforce.

Work in the City

In Chicago, undocumented immigrants “seek work at extremely high rates [of] 91 percent,” according to a 2002 study conducted by the Center for Urban Economic Development at the University of Illinois at Chicago. For this work, the study found, their average hourly wage is $7.00 – a dollar less than the $8.00 legal minimum in Illinois. Relative to immigrants with legal status, the study noted, undocumented immigrants report working in unsafe conditions at considerably higher rates. They are also the only immigrant group for which educational attainment does not have significant positive wage effects.

The study, which surveyed 1,653 documented and undocumented immigrants living in the Chicago area, also estimated that “the consumer expenditures of undocumented immigrants in the Chicago metro area generate 31,000 jobs in the local economy and add $5.45 billion annually to the gross regional product.”

Rita, who makes $9.50 an hour working 6:30 am to 3:00 pm at the plumbing parts factory, and who takes overtime whenever she can get it, says the 15.4 percent missing from her paycheck is money she sorely needs.

Her daughter works 15-30 hours a week in addition to attending college, and after paying for her school fees and her cell phone bill, puts the money towards household expenses – her eldest son does the same. But even with this, the family lives from paycheck to paycheck, Rita says.

Diego Bonesatti, a community worker with 21 years of experience in nonprofit immigration law and immigrant rights and is currently volunteering to set up a immigration legal clinic at a community center in the Chicago suburbs, says that despite the struggles, there are compelling reasons for undocumented immigrants to pay taxes. It “definitely helps in specific immigration cases for undocumented immigrants – such as Cancellation of Removal [deportation] for non-permanent residents to help satisfy specific statutory requirements,” he says.

Paying taxes is beneficial in cases where there is a requirement to prove good moral character, as it shows both compliance with the law and gainful employment, Bonesatti said, adding that “it also helps in other matters of discretion” where it may help tilt the balance in favor of the applicant.

Furthermore, he continued, the majority of immigration reform proposals, from the Bush-era Security Through Regularized Immigration and a Vibrant Economy Act (STRIVE) of 2007 to the most recent Comprehensive Immigration Reform for America’s Security and Prosperity Act (CIR ASAP) of 2009, have included some form of tax payment to start a path towards legalization. Bonesatti says he expects the final bill, whenever it is ultimately voted on, to have a tax component.

Out of the System

The assumption of anti-immigrant figureheads is that undocumented immigrants are a burden on social services and benefit unfairly from government programs, but until comprehensive immigration reform is passed, undocumented immigrants are disqualified from nearly all means-tested government programs. The sweeping welfare reform bill excluded undocumented immigrants from housing, Medicaid and Medicare-funding hospitalization assistance and food stamps – the only services that are available to them are K-12 education and emergency medical care.

Those who do pay taxes are eligible for tax refunds but not for the Earned Income Tax Credit, which is a refundable income tax credit for low to middle-income families. By 2009 federal poverty guidelines, Rita’s family lives below the poverty line, which is $22,050 for a family of four. Based on their financial information, if they were eligible for Earned Income Tax Credit they would receive $2,780 back for 2009.

Also, because the majority of undocumented immigrants come to the United States during their prime working years, the cost of their education and upbringing has already been paid by their home countries.

According to a study released by the National Council of La Raza, “During their working life, undocumented immigrants in the United States will pay, on average, approximately $80,000 more in taxes per capita than they use in government services, owing to the fact that they are not eligible to take advantage of almost all of the social service programs offered by the federal government.”

This is the case on both the federal and state level – the La Raza report cites the disclosure of the Texas Comptroller that, in 2006, undocumented immigrants paid about $424.7 million more in state revenues than they actually used in state services, which included education and health care.

The IRS has also recognized the contribution of undocumented immigrants: IRS Commissioner Mark Everson told a Congressional hearing in 2006 that “Many illegal aliens, utilizing ITINs, have been reporting tax liability [earned] to the tune of almost $50 billion from 1996 to 2003.”

Stephen C. Goss, the Social Security Administration’s chief actuary, said, “Our assumption is that about three-quarters of other-than-legal immigrants pay payroll taxes.” Other-than-legal is the agency’s term for undocumented immigrants.

According to an article by the New York Times, the Social Security Administration placed W-2 earning reports they received with incorrect information, starting largely in the late 1980s, into an “earnings suspense file.” About $189 billion in wages were recorded in this file over the 1990’s – two and a half times the amount in the 1980s – and the file continues to grow by more than $50 billion a year, the article states. This generates up to $7 billion in tax revenue for Social Security, and $1.5 billion in Medicare taxes.

“Illegal immigrants account for the vast majority of the suspense file . . . Especially its growth over the 1990’s, as more and more undocumented immigrants entered the work force,” said Nick Theodore, the director of the Center for Urban Economic Development at UIC.

Federal Protection

The IRS has in large part kept itself separate from immigration services, and avoided punishing the individuals who shore up the system. According to the Legal Services of New Jersey website, “The IRS takes privacy laws very seriously. The IRS cannot report you to immigration or UCIS for getting an ITIN. A court, however, can make the IRS release information about you if you are in deportation proceedings or under suspicion for terrorist activities.”

Following the raiding of a tax filing office in Colorado in 2009 by the sheriff to find information on undocumented immigrants using fake social security numbers, IRS spokesman Frank Keith, said, “We are concerned when information provided by taxpayers to meet their legal tax obligations is used for purposes other than federal tax administration.”

A projection of the effects of higher and lower immigration patterns on taxes conducted by the Social Security Administration from census and Immigration and Customs Enforcement data in 2007 found that with high immigration the SSA’s combined trust fund would last four years longer than with half the amount of immigration.

A study by the Center for American Progress found that, “Comprehensive immigration reform that legalizes currently unauthorized immigrants and creates flexible legal limits on future immigration in the context of full labor rights . . . would yield at least $1.5 trillion in cumulative U.S. gross domestic product over 10 years.”

For Rita, the decision to come to the United States and live as an undocumented immigrant has been worth the risk, she says. There has always been food on the table, and her eldest daughter was recently awarded one of the few university scholarships available to undocumented students. Her youngest son, when he grows up, will have all the educational possibilities that this woman who was not educated past the sixth-grade always dreamed her child would have.

Rita’s opinion on the way her hard-earned money is shoring up the short-fall in Social Security taxes while she lives in the shadows of the immigration system? That’s “the price that we pay.”

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