Illegal Immigrants Versus Legal Tax Payers

We always seem to be in some form of debate about the best way to manage immigration in the United States. Recently, I was listening to the radio and heard a commentator discussing whether or not illegal immigrants deserve tax refunds, especially if they are due to refundable credits.

In no way is this post going to opine whether or not we should resolve our immigration policies. What I will do is to attempt to explain what is a confusing topic – the difference between being a legal resident in the United States and being a resident tax payer – as the two are very different and managed by two different agencies.

We are all very familiar with what constitutes the legal definition of residency in the United States (e.g. work permit, VISA, green card, citizenship). And clearly, if you have citizenship in this country you should, and likely do, pay taxes.

However, if you are in this country illegally, you still fall under the rules related to resident aliens meaning that generically you are supposed to file and pay taxes, and are subject to the internal revenue code (and associated state / city codes).

In practicality, most employers, especially in professions that have historically have illegals working, report the SSN that is given to them and subsequently withhold taxes and payroll taxes. Some people will game the system and elect an unusually large number of dependents to avoid the withholding. This still subjects them to social security (can’t get out of that one) and in all likelihood isn’t causing the system much harm as these folks mostly fall into the lower tax brackets and wouldn’t have paid much anyway (e.g. it would’ve been refunded).

When doing research for this post, I came across the following 2007 New York Times Article that discusses why illegal immigrants sometimes file taxes – some are altruistic in their reasoning.

Let’s also remember that social security is not refundable and technically they are not eligible to receive benefits. However, illegal immigrants in some instances can receive Medicare / Medicaid benefits.

So – what do you think – if someone is here illegally, worked, paid taxes, and filed a tax return should they get a refund? How about refundable credits?

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