It’s a massive misconception that people without legal status in the U.S. just live off the grid when it comes to the IRS. Honestly, the opposite is true for a huge chunk of the population. People ask how can illegal immigrants pay taxes like it’s some impossible riddle, but the federal government actually built a specific door for exactly this purpose back in the nineties.
They use something called an ITIN.
Uncle Sam doesn't care much about your visa status. He cares about his cut. The Internal Revenue Service (IRS) is a tax collection agency, not an immigration enforcement arm. Because of Section 6103 of the Internal Revenue Code, the IRS is generally prohibited from sharing taxpayer information with other government agencies, including Immigration and Customs Enforcement (ICE). This "wall" is why millions of undocumented workers feel comfortable—or at least comfortable enough—to file every April.
Getting the ITIN: The First Step
If you don't have a Social Security Number (SSN), you can't just leave the box blank on a Form 1040. You need an Individual Taxpayer Identification Number.
The process is pretty straightforward but feels high-stakes if you’ve never done it. You fill out a Form W-7. You have to prove two things: who you are and that you’re actually in the U.S. Usually, a valid foreign passport is the "gold standard" because it hits both requirements at once. If you don't have that, you're looking at a combination of things like a birth certificate, a national ID card, or a U.S. driver's license.
The catch? You can’t just mail in the W-7 by itself.
The IRS wants to see a completed tax return attached to that application. You’re basically saying, "Hey, I want an ID number, and here is the money I owe you to prove I need it." You can mail your original documents to the IRS center in Austin, Texas, but most people are (rightly) terrified of losing their passport in the mail. That’s why Certified Acceptance Agents (CAAs) exist. These are private accountants or community organizations authorized by the IRS to verify your documents so you can keep your originals in your pocket.
Why on earth would someone volunteer to pay?
It sounds counterintuitive. Why would someone who is technically "undocumented" hand over a portion of their paycheck to a government that might deport them?
📖 Related: The Business of War: Why Some Argue Making a Profit from Conflict Still Matters
It’s about the "paper trail."
In the world of immigration law, "good moral character" is a big deal. If there’s ever an amnesty program or a path to residency—like the 1986 IRCA or various proposed DREAM Act iterations—the first thing a lawyer is going to ask for is tax returns. It proves you were here. It proves you worked. It proves you contributed. Beyond that, having a tax history helps with the basics of American life. Want to buy a house? Most mortgage lenders for ITIN holders want to see two years of tax transcripts. Want to open a bank account? An ITIN is often the key.
Then there is the reality of withholding. Many undocumented workers use a fake or expired SSN just to get through a payroll system at a construction site or a kitchen. Their employers withhold taxes anyway. If that worker doesn't file a return, they’re just gifting that money to the government. By filing with an ITIN, they can sometimes get a refund, especially if they qualify for the Child Tax Credit (though the rules on this changed significantly with the 2017 Tax Cuts and Jobs Act).
The Billions of Dollars Nobody Mentions
Let’s look at the numbers because they are staggering. According to the Institute on Taxation and Economic Policy (ITEP), undocumented immigrants contribute roughly $11.7 billion to state and local taxes every year.
That isn't just sales tax at the grocery store.
💡 You might also like: Will Dogecoin Reach $1? Why Most Price Predictions Are Missing the Point
A huge portion comes from personal income taxes. In states like California and Texas, the contributions are in the billions. Even though these workers pay in, they are ineligible for the vast majority of the benefits those taxes fund. They can’t claim Social Security later. They don’t get Medicare. They don't qualify for the Earned Income Tax Credit (EITC). It’s essentially a "pay-to-stay" system where the benefits are mostly psychological or geared toward a hypothetical future legal status.
Common Roadblocks and Mistakes
The system isn't perfect. Far from it.
One of the biggest headaches is the expiration of ITINs. A few years back, Congress decided that if you don't use your ITIN for three consecutive years, it expires. Or, if the middle digits fall into a certain range, it expires. This creates a cycle of paperwork that keeps tax prep clinics buried every spring.
Another issue? Scams.
Because people are nervous, "notarios" or shady tax preparers often charge $500 or more just to file a W-7 that should be free or very cheap. These preparers sometimes invent deductions to get a bigger refund, which triggers an IRS audit. An audit for an undocumented person isn't just a financial headache; it's a terrifying encounter with the federal government.
The Reality of Social Security Taxes
This is the part that really trips people up. When an undocumented person works a "W-2 job," they pay into Social Security and Medicare.
They will likely never see that money again.
✨ Don't miss: Nancy Pelosi Investment Tracker: What Most People Get Wrong
The Social Security Administration keeps a "Earnings Suspense File." This is where money goes when the name and SSN on a W-2 don't match. As of the last major audit, there was over $1.5 trillion in that file. Most of that is attributed to undocumented labor. So, when people ask how can illegal immigrants pay taxes, the answer is often "automatically, through their paycheck," even if the government can't technically link those earnings to a legal retirement account.
Actionable Steps for Filing
If you are navigating this, or helping someone who is, there is a specific way to handle it to avoid trouble.
- Find a CAA: Don't mail your passport to Texas. Use the IRS website to find a "Certified Acceptance Agent" near you. They can verify your ID on the spot.
- Keep Every Receipt: If you are a 1099 contractor (common in cleaning or landscaping), you need to track your expenses. You’re taxed on profit, not gross income.
- Don't Use a "Ghost" Preparer: If the person doing your taxes won't sign the return or put their PTIN (Preparer Tax Identification Number) on it, run away. That’s a huge red flag.
- Separate the Fears: Understand that the IRS is strictly bound by confidentiality. Filing taxes is generally seen by immigration attorneys as a "plus" for your file, not a "minus."
- Address Changes: If you move, tell the IRS. If they send a letter asking for more info and you don't get it, they will reject your ITIN application, and you'll have to start over.
The process is tedious and sometimes scary. But for millions, paying into a system that doesn't always recognize them is a calculated investment in a future where they might finally be allowed to stay. It's about being "on the record" in a country that often prefers them to be invisible.
Filing these taxes is the ultimate proof of presence. It’s a paper trail of a life lived, work performed, and a debt paid. For the IRS, that’s all that matters. For the taxpayer, it’s a gamble that the government's memory is long enough to remember their contribution when the laws eventually change.
Practical Resources:
- IRS Publication 1915: Understanding Your IRS Individual Taxpayer Identification Number.
- Form W-7: The official application for an ITIN.
- Low Income Taxpayer Clinics (LITC): Free or low-cost help for people in disputes with the IRS.