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Saturday, July 13, 2019

Why Undocumented Immigrants Choose to Pay Income Taxes

If amnesty is offered and you’re proven to be a tax evader, you most likely will be rejected.

Photo by Jhon David on Unsplash

Last year I transferred my driver’s license from New Jersey to New York, and during that process, I needed to show the DMV my Social Security card as proof of identity—not the number, but the physical card that I haven’t actually seen in years. I got a replacement card from SSA pretty quickly, and after a few hours at the local DMV, I had a new license.

Last June, the governor of New York signed a bill that would allow the state to issue driver’s licenses to undocumented immigrants. The IRS created a program in 1996 that allows non-citizens residing in the USA who are earning money to report their income.The bill is considered controversial, with more than half the state’s residents against it. But my first thought when I learned about its existence was: how can they apply for licenses without a physical Social Security card they can’t legally obtain?

The answer to my initial question is pretty undramatic; the applicant has to sign an affidavit that says they don’t have a Social Security card. But when I was discussing my question with others, I learned that the IRS created a program in 1996 that allows non-citizens residing in the US who are earning money to report their income.

Individual Taxpayer Identification Number

Individual Taxpayer Identification Numbers (ITINs) were created to allow non-US citizens who are not employed but are earning money in the US a way to report their income. For example, if a Russian citizen has bank accounts in the United States, then they are supposed to report the interest earned from those accounts to the IRS. At least, that was the original intention. It’s estimated today that the majority of ITINs belong to undocumented immigrants working in the United States. In 2010, there were more than three million ITINs used for filing federal tax returns.

Obtaining an ITIN is relatively easy. All you need is a completed form, proof of identity (like a foreign-issued passport), and a completed tax return. This information is protected with privacy laws and is prohibited from being shared with the Department of Homeland Security. The only way for this information to be shared between the IRS and DHS is for federal legislation to be written allowing it, and in today’s current political climate that seems less likely than the Buffalo Bills winning four Super Bowls in a row.

Why Would an Undocumented Immigrant Want to Document Their Work?

My wife is an immigrant, and when we went through the naturalization process, checking for a criminal record was an important part of that process. Having a criminal record or documented history of illegal activity is a red flag that will hurt an individual’s chances of their visa or permanent residence application being approved. And while it’s highly unlikely that DHS will obtain the ITINs of undocumented immigrants illegally working in the US, it’s not impossible. If amnesty is offered and you’re proven to be a tax evader, you most likely will be rejected.So why risk exposing yourself to the possibility of future prosecution?

If there’s one thing people, in general, dislike more than paying taxes, it’s people who commit tax evasion. Every American who works for a living pays taxes on their income, and most undocumented immigrants have decided it’s worth the risk to document themselves as law-abiding taxpayers so they will have good standing legally and socially if one day amnesty—and with it, permanent legal status—is offered by the federal government. Otherwise, if amnesty is offered and you’re proven to be a tax evader, you most likely will be rejected.

Why the Current Set-Up “Works”

It’s estimated that the federal government collects $9 billion dollars in revenue a year from this arrangement. Undocumented immigrants are also paying into Social Security and are helping the fast-depleting program hemorrhage less money than it normally would because they are ineligible from collecting it later in life. It’s no secret that the federal government spends obscenely more than it collects, and these people are helping to fix a big problem that not many people are talking about, even if it’s just putting a bandaid on a gunshot wound ($9 billion is a lot of money, but it’s tiny compared to $1 trillion in deficits).

The United States government spends a lot more money than it actually collects in revenue. Economics is generally regarded as a science that examines how people make practical decisions with the limited resources they have. Any competent person or bureaucrat would not turn away any money when they desperately need a large sum.

Lawmakers fight over funds for law enforcement while they refuse to change the situation by writing laws that could actually make a difference.

Currently, we have a crisis on the border where more people are trying to illegally enter the country than law enforcement is equipped to handle. We have people outraged at the conditions of detention centers, while others are outraged that people have been released from those detention centers have been allowed to “disappear” into the country. We have immigration laws and a president determined to enforce them with the ‘i’s dotted and ‘t’s crossed. We have lawmakers fighting over the funds for law enforcement out of morality and principle while they refuse to change the situation by writing or proposing laws that could actually make a difference.

Regardless of your position on the issue, people can agree that we have a giant mess. It’s just interesting to note that in all this chaos, the tax man is still getting his.

  • Daniel Kowalski is an American businessman with interests in the USA and developing markets of Africa.