It is a weird paradox that trips people up. Most people assume that if you don't have a legal right to work in the United States, you're strictly "off the books." You get paid in cash under a table at a restaurant, right? Well, sometimes. But the data tells a much more complicated story. Millions of people are actually sending money directly to the IRS every single year.
So, how are undocumented immigrants paying taxes when they don't have a Social Security number?
It’s not just about sales tax on a loaf of bread or a pair of jeans. We are talking about billions of dollars in income, payroll, and property taxes. According to the Institute on Taxation and Economic Policy (ITEP), undocumented immigrants contributed roughly $96.7 billion in federal, state, and local taxes in 2022 alone. That is a staggering number. It’s also a number that keeps growing, even as the political debate around the border gets louder and more fractured.
Honestly, the "why" is often as interesting as the "how." For many, it’s about creating a paper trail. If there is ever a path to legal status or a "blue card" for farmworkers, having a record of tax compliance is usually a prerequisite. It's a way of saying, "I've been here, I've worked, and I've contributed."
The Magic of the ITIN
The biggest piece of the puzzle is the Individual Taxpayer Identification Number (ITIN).
The IRS created the ITIN back in 1996. They didn't do it to enforce immigration law—that isn't their job. They did it because their mandate is to collect revenue from anyone earning income on U.S. soil, regardless of their legal status. The tax code doesn't care if you have a visa; it just cares if you have a paycheck.
Getting an ITIN is a process. You fill out a Form W-7. You have to prove your identity with a passport or a birth certificate. Once you have that nine-digit number, you can file a tax return just like anyone else. But here is the kicker: an ITIN doesn't give you the right to work. It doesn't give you Social Security benefits. It doesn't make you "legal." It’s literally just a processing number so the government can take your money.
Why would someone volunteer to pay?
Think about the risk. You are handing over your name and address to a federal agency while being in the country without papers. It sounds terrifying. Yet, in 2019, the IRS received over 2 million tax returns filed with ITINs.
People do it for a few reasons. First, as mentioned, it’s about future residency. If a "pathway to citizenship" ever becomes law, "good moral character" is the standard. Paying taxes is the ultimate proof of that. Second, it allows people to open bank accounts or apply for mortgages in some states. Third, it’s about the kids. Many undocumented parents have U.S. citizen children who are eligible for certain tax credits.
Payroll Taxes: The System's Unintentional Windfall
This is where it gets even more surreal.
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A massive chunk of the tax revenue from undocumented workers doesn't come from ITIN filings. It comes from "mismatched" Social Security numbers.
When a person gets a job at a construction site or a meatpacking plant, they often provide a Social Security number that doesn't belong to them or is simply made up. The employer doesn't always know. They run the payroll, withhold federal income tax, Social Security tax, and Medicare tax, and send it off to the government.
The money goes into the Earnings Suspense File (ESF) at the Social Security Administration.
Since the worker can't claim the benefits—because the number doesn't match their identity—that money just sits there. Or rather, it stays in the system to pay for everyone else’s retirement. Stephen Goss, the Chief Actuary of the Social Security Administration, has estimated that undocumented workers contribute about $13 billion a year to the Social Security Trust Fund without any hope of ever receiving a check.
It’s basically a massive, interest-free donation to the American social safety net.
Beyond the Federal Level: State and Local Impact
We often focus on the IRS, but the impact at the state level is massive. Undocumented immigrants pay sales taxes every time they buy gas, groceries (in some states), or clothes. They pay property taxes, either directly as homeowners or indirectly through their rent.
In states like California, Texas, and New York, this adds up to billions.
- California: Undocumented residents pay over $8 billion in state and local taxes annually.
- Texas: Despite the heavy political rhetoric, the state receives about $4.9 billion in tax revenue from this population.
- Florida: Roughly $3 billion enters state coffers from undocumented households.
Without these contributions, many state budgets would have significant holes. Public schools, roads, and emergency services are funded by these dollars, even though the people paying them are often ineligible for the very programs their money supports, like unemployment insurance or SNAP (food stamps).
The Complexity of Withholding
Let's look at a real-world scenario. Imagine a woman named Maria. She works two jobs—one at a dry cleaner and one cleaning offices at night.
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At the dry cleaner, she’s "on the books" using a fake SSN she bought years ago. Every Friday, her stub shows deductions for federal and state taxes. She never sees that money again. She can’t file a return to get a refund because she doesn't want to flag the fake number.
At her night job, she uses her ITIN. She’s treated as an independent contractor. At the end of the year, she actually owes the IRS money because no taxes were withheld. She pays it. She writes a check for $1,200 every April.
Why? Because she wants to stay "clean" with the government.
This happens millions of times over. It’s a shadow economy that is weirdly compliant with the law.
Common Misconceptions and the "Free Ride" Myth
The most common argument you hear is that undocumented immigrants are a "drain" on the system. While it's true that there are costs associated with public education and emergency room visits, the "free ride" narrative misses the math on the revenue side.
Most undocumented immigrants are not eligible for the vast majority of federal welfare programs.
- They can't get ACA (Obamacare) subsidies.
- They can't get regular Medicaid (except for emergency "Labor and Delivery").
- They don't qualify for the Earned Income Tax Credit (EITC) if they file with an ITIN.
Essentially, they are paying into a "club" they aren't allowed to join.
What about the 2024-2026 shifts?
As we move deeper into the mid-2020s, the IRS has become more sophisticated. They've updated the ITIN renewal process to ensure the numbers are being used for legitimate tax purposes. At the same time, some states are making it easier for ITIN holders to participate in the local economy.
For example, more states are now allowing ITIN holders to apply for professional licenses—to become barbers, nurses, or electricians. This moves more people from the "cash-only" world into the formal tax-paying world. It's a pragmatic shift. If people are here and working, the state might as well collect the revenue.
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The Limitation of the Data
It's worth acknowledging that we don't have perfect numbers. By definition, this is a population living in the shadows.
Researchers at the Center for Migration Studies and the Pew Research Center use "residual methodology" to estimate these figures. They take the total foreign-born population and subtract those who are known to be legal residents. It’s a bit like counting the holes in a Swiss cheese to figure out how much cheese you have.
But even with conservative estimates, the fiscal contribution is undeniable. If you deported every undocumented worker tomorrow, the Social Security Trust Fund would face a massive, immediate deficit.
Actionable Insights and Next Steps
Understanding how this works isn't just about politics; it’s about understanding the mechanics of the U.S. economy.
For Employers:
It is vital to understand the difference between an ITIN and an SSN. An ITIN is for tax reporting only and does not provide work authorization. Using the E-Verify system is the standard for checking legal work status, but remember that tax withholding must happen regardless of the number provided.
For Policy Watchers:
Keep an eye on state-level legislation regarding ITINs. As federal immigration reform remains stalled, states are increasingly taking the lead on how they integrate or tax their undocumented populations. This is where the most significant economic shifts are happening right now.
For Tax Professionals:
Helping clients with ITIN applications (Form W-7) is a specialized niche. It requires certifying original documents or working with a Certifying Acceptance Agent (CAA). It’s a vital service that keeps people in compliance and helps them build a legal "paper trail" for the future.
The system is broken, sure. But in the meantime, the IRS is more than happy to keep cashing the checks.
Next Steps for Further Research:
- Check the latest ITEP State-by-State Reports for updated tax contribution figures in your specific region.
- Review IRS Publication 1915 to understand the rigorous identity requirements for obtaining an ITIN in 2026.
- Investigate the Social Security Administration’s Earnings Suspense File data to see how much "unclaimed" tax revenue is currently propping up the retirement system.