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Facts about Immigration:  Separating the wheat from chaff (Luke 3:17).

Do undocumented immigrants pay income taxes?

The Social Security Administration, the IRS, and immigration agencies freely admit that a large number of immigrants that are not authorized to work in the United States are having social security and income taxes withheld from their paychecks.  One way this has occurred is through the proliferation of the “Individual Taxpayer Identification Numbers” (ITIN).  This month’s issue will briefly examine the ITIN and how it is used.

The IRS collects income tax from all aliens- irrespective of their legal status- who earn income in the United States.  Taxes are generally collected through payroll withholdings and submitted tax returns.  Aliens not eligible to receive a social security number can apply for an ITIN.  It is a nine-digit number that always begins with the number 9 and has a 7 or 8 in the fourth digit, example 9XX-7X-XXXX.  The IRS describes it this way:

ITINs are for federal tax reporting only, and are not intended to serve any other purpose. An ITIN does not authorize work in the U.S. or provide eligibility for Social Security benefits or the Earned Income Tax Credit. ITINs are not valid identification outside the tax system. IRS issues ITINs to help individuals comply with the U.S. tax laws, and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security Numbers. (emphasis added)

You can read more about ITINs here: http://www.irs.gov/individuals/article/0,,id=96287,00.html#what
As of June 2006, the IRS had issued more than 7 million ITINs.  Read more here:http://www.ssa.gov/oig/ADOBEPDF/audittxt/A-03-05-25038.htm
The IRS states that the tax return filing compliance rate for ITIN holders is about 75% . Learn more on page 52. (pdf)

Problems have arisen because, like the social security number, ITINs are being used as personal identifiers by government agencies and the private sector for things like employment, insurance, and drivers’ licenses.  This has created unintended problems because aliens are paying Social Security taxes with ITINs.  ITINs are not valid social security numbers and thus any money withheld in conjunction with an ITIN is a “no match” and will be put in the Social Security Administration’s suspense file.  In response to a question at a March 10, 2004 subcommittee hearing of the United States House Weighs & Means Committee, James B. Lockhart, III, the Deputy Commissioner of the Social Security Administration said this:

What I said is in our suspense file, there are approximately $7 billion a year of payroll taxes, if you will, that we treat as payroll taxes, as if they came from a legitimate person. Now, the point is that most of those will never be matched to anybody, at least a major portion of them, and so they will never be used to pay a benefit from the system.

See here at page 34. (pdf)

You can read an interesting article about the subject here:  http://www.nytimes.com/2005/04/05/business/05immigration.html?_r=2&oref=slogin&oref=slogin

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