How Do Undocumented Immigrants Get Tax Credits?

In this article, we will discuss the eligibility requirements for tax credits among undocumented immigrants, how they can file for these credits using Individual Taxpayer Identification Numbers (ITINs), and the broader impact of their contributions on both their families and the economy.

How Do Undocumented Immigrants Get Tax Credits 2

Undocumented immigrants play a significant role in the U.S. economy, contributing billions in taxes each year despite their ineligibility for many federal benefits. One area of interest is how these individuals can access certain tax credits, which can provide crucial financial relief for low-income families. This article will explore the mechanisms through which undocumented immigrants can claim tax credits, the specific credits available to them, and the implications of these provisions.

Understanding Tax Credits

Tax credits are reductions in the amount of tax owed to the government, providing significant financial benefits to eligible taxpayers. Unlike deductions, which reduce taxable income, tax credits directly decrease the amount of tax liability. Some tax credits are refundable, meaning that if the credit exceeds the total tax owed, the taxpayer can receive a refund for the difference.

Key Tax Credits for Undocumented Immigrants

While undocumented immigrants face restrictions regarding certain federal tax credits, there are specific credits they may still be eligible to claim:

  • Child Tax Credit (CTC): Undocumented immigrants can claim the CTC if they file taxes using an ITIN, but only if their children have valid Social Security numbers (SSNs). This refundable credit provides financial support for families with children under 17. However, it is important to note that undocumented children do not qualify for this credit.
  • American Opportunity Tax Credit (AOTC): This credit helps cover qualified education expenses for eligible students during their first four years of higher education. Undocumented immigrants with an ITIN can claim this credit, but it must be filed on a timely return.
  • Credit for Other Dependents: This non-refundable credit is available to taxpayers who have dependents that do not qualify for the CTC. It allows families with dependents holding ITINs to receive a limited credit amount.
How Undocumented Immigrants Claim Tax Credits

How Undocumented Immigrants Claim Tax Credits

To access these tax credits, undocumented immigrants must file a federal income tax return using their ITINs. Here’s how they can do it:

  1. Obtain an ITIN: Undocumented immigrants can obtain an ITIN by submitting Form W-7 to the IRS along with a completed federal tax return. The ITIN allows them to comply with U.S. tax laws and file returns even without a Social Security number.
  2. File a Federal Tax Return: Once they have an ITIN, undocumented immigrants can file their federal income taxes using Form 1040 or 1040-SR. They must include any eligible dependents and claim applicable tax credits on their returns.
  3. Meet Filing Deadlines: To claim certain credits like the AOTC or CTC, taxpayers must file their returns by the deadline set by the IRS. Extensions may be available but should be filed timely to ensure eligibility.

Challenges and Limitations

Despite these opportunities, undocumented immigrants face several challenges when it comes to claiming tax credits:

  • Exclusion from EITC: The Earned Income Tax Credit (EITC), one of the most significant anti-poverty programs in the U.S., is not available to undocumented immigrants or those filing with an ITIN. This exclusion limits financial support for many low-income families.
  • State-Level Variability: While some states have expanded access to state-level EITCs and CTCs for ITIN filers, many still adhere to federal restrictions. This inconsistency creates disparities in support across different regions.
  • Fear of Disclosure: Many undocumented immigrants may hesitate to file taxes or claim credits due to fears about exposing their immigration status or facing potential legal repercussions.

The Economic Impact of Tax Credits

The contributions made by undocumented immigrants through taxes are substantial. In 2022 alone, it was estimated that they contributed over $15 billion in state and local taxes and approximately $9 billion in payroll taxes annually. By allowing access to certain tax credits, policymakers could further enhance economic stability for these families while also benefiting local economies through increased consumer spending.