Tax Credits for Illegal Immigrants
Posted on May 11, 2012
Q: Does the IRS pay billions in tax refunds to workers who are in the U.S. illegally?
A: Yes. The Treasury Department’s Inspector General determined that $4.2 billion was paid in 2010, up from less than $1 billion in 2005. Leading Democrats are resisting a bill that would stop future payments.
Is this true?
Subject: Indianapolis TV … Channel 13, WTHR – Tax Loophole for Illegals
Contact your Congressperson and Senator and ASK THEM why this is being tolerated!
You may not read my political email ……. But you
Really should read this one. This tax loophole dips
Right into YOUR pocket defrauding you ….. The
YOU WILL NOT BELIEVE THIS, but it is true!!
Watch the newscast video and stay calm!
Please pass this on to other honest tax payers!!
This is a rare case of an Internet rumor with some substance to it. In fact, it’s shaping up as a major dogfight in Congress. At issue here are the federal child tax credits that can be claimed by persons with dependent children under age 17. Some Democrats are already defending these child tax credit payments that have gone to those without a valid Social Security number, accusing Republicans who want to end them of a heartless attack on children.
Several different versions of this viral email all cite a recent investigative story by an Indianapolis television station, but WTHR-TV is far from the first to notice. The Washington Post and others reported on this last year when the Treasury Department’s inspector general for tax administration issued a report on July 7, 2011.
The title of the report summed up the IG’s finding: “Individuals Who Are Not Authorized to Work in the United States Were Paid $4.2 Billion in Refundable Credits.”
The credits currently amount to $1,000 per child, and they are “refundable,” meaning that parents may receive refunds even when they do not owe any tax.
The IG report stated that more than 2.3 million persons who did not have Social Security numbers valid for working in the U.S. got an average of roughly $1,800 each in 2010 in child tax credit refunds. That included 9,000 illegal immigrants who each got a total of $10,000 or more by retroactively claiming credits for tax years prior to 2010.
How This Happened
Here we should explain that the IRS routinely seeks to collect both federal income taxes and federal payroll taxes from illegal immigrants, who are required to pay regardless of their immigration status. Because such workers don’t qualify for a valid Social Security number, the IRS issues a nine-digit Individual Taxpayer Identification Number. An ITIN doesn’t authorize the user to work legally in the U.S., and doesn’t entitle him or her to Social Security benefits.
But in addition to collecting taxes, the IRS has increasingly been making payments to low-income workers who pay no federal income tax but qualify for “refundable” credits. Generally, illegal immigrants don’t qualify for Social Security, Medicare or other federal benefits, except for emergency medical treatment in hospitals. And since passage of the 1996 welfare reform law, they have been ineligible for the refundable portion of the Earned Income Tax Credit as well.
At that time, Congress required that a valid Social Security number be filed for those claiming the EITC, and that requirement saved an estimated $300 million a year. But Congress did not enact a similar requirement when it created the child tax credit, which went into effect in tax year 1998 at $400 per child, and was increased to $500 the following year.
Initially the credit wasn’t refundable in most cases (only for families who had three or more children and who also met certain income tests). So the issue of illegal workers claiming credits did not arise at first. But the 2001 Bush tax cuts made more parents eligible for refundable credits, and increased the amount in steps to $1,000 per child.
So by 2005, the recent IG report said, 796,000 persons without valid Social Security numbers claimed refundable child credits totaling $924 million, and in 2008, these claims had risen to 1,526,276 persons claiming $2.1 billion in refunds.
Finally, President Obama’s 2009 stimulus measure made temporary changes that had the effect of allowing more parents to claim the refundable credits, or claim greater amounts. And the total grew the following year to the $4.2 billion cited by the IG. Those “temporary” changes now have been extended at least through 2012 by the bill Obama signed in December 2010, which also extended the Bush tax cuts and enacted additional economic stimulus measures including a reduction in federal payroll taxes.
What’s to Be Done?
Release of the IG report last year sparked a Republican effort to stop the payments, and an emotional opposition to that effort from Democrats. They argue that the beneficiaries of the credits are in effect the U.S.-born children of the low-income parents who claim the credits.
The effort to stop the payments is also opposed by the National Council of La Raza. In a statement issued in January, it said: “More than 4 million Latino children and their families would face greater hunger, poverty, and other severe hardships if this proposal is enacted.”
Nevertheless, a House bill by Texas Republican Sam Johnson (H.R. 1956) had collected 60 GOP cosponsors as of May 10. It would require that at least one parent file a valid Social Security number to collect a refundable child tax credit. A similar provision reached the House Ways and Means Committee April 18. Committee members approved it by a party-line vote of 22 to 12, with only Republicans voting for and only Democrats voting against it.
During the committee markup, Democratic Rep. John Lewis of Georgia spoke emotionally against the measure and said it “attacks our nation’s children. Our children! The little ones, the innocent ones.”
He argued that those who benefit are “American children,” even though the ones who claim the credit are their working parents.
Rep. Lewis, April 18: The benefits go to the United States citizen children. My God! Listen! . . . [T]he question must be raised, where is our concern? Where is our compassion? Where is our heart? Where is our soul?
Lewis isn’t entirely correct: Non-citizen children can qualify if they are legally residents and have at least an ITIN. And the requirements aren’t vigorously enforced. The IG report said the IRS management doesn’t demand that parents submit documentation to prove that the children they are claiming actually reside in the U.S., something the IG recommended and IRS management said it lacked legal authority to do. So it is at least possible that some refunds are being paid based on children who aren’t citizens, or who aren’t even living in the U.S.
Also during the Ways and Means markup, Democratic Rep. Bill Pascrell of New Jersey said the measure would save only “a very small amount of money” compared with the entire federal budget. It’s true that it wouldn’t save $4.2 billion a year, the figure cited by the IG, at least by official scoring of congressional tax experts. The nonpartisan staff of the Joint Committee on Taxation projected that the proposal would reduce federal outlays by $1 billion in 2014, and $7.6 billion over 10 years.
In reality, the savings likely would be larger, however. The JCT projection assumes (as it is required to do) that tax law remains otherwise unchanged. And under current law, the child tax credit is set to fall to $500 in 2013, and the “temporary” liberalization initiated by the 2009 stimulus measure is also set to expire. The savings would be higher if Congress continues the credit at $1,000 per child, as Democrats and Republicans have agreed to do in the past.
Not all Democrats defend the payments. In the Senate, Claire McCaskill of Missouri called the IG report “alarming” and asked the IRS to act. “While the total amount of payments to unauthorized workers is enormous, the trend lines are even more disturbing,” McCaskill wrote in a letter to IRS Commissioner Douglas Shulman on Sept. 7, 2011. “Wrongful payments of refundable tax credits, should be easy to identify and stop. The law is clear that individuals who are not authorized to work in the United States are not entitled to public benefits.”
But McCaskill is in a tough reelection fight in a conservative state, and other Senate Democrats are not so eager to go after the payments. Senate Democratic Leader Harry Reid is publicly opposed, for one. “I just think the child tax credit is working just fine and there’s no need to punish children,’’ Reid told The Associated Press in early February.
— Brooks Jackson
Internal Revenue Service, “Child Tax Credit” Publication 972. Accessed 11 May 2012.
“13 Investigates Tax Loophole.” WTHR-TV. 26 Apr 2012.
Rein, Lisa. “Undocumented workers got billions from IRS in tax credits, audit finds” Washington Post. 2 Sep 2011.
Hirsch, Michelle. “IRS Is Paying Illegal Immigrants Billions of Dollars” The Fiscal Times. 2 Sep 2011.
U.S. Treasury Inspector General for Tax Administration. “Individuals Who Are Not Authorized to Work in the United States Were Paid $4.2 Billion in Refundable Credits” 7 Jul 2011.
Congressional Budget Office. “Federal Budgetary Implications of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996” Dec 1996.
Esenwein, Gregg A. “The Child Tax Credit” Congressional Research Service, Library of Congress. 31 Jul 2007.
Internal Revenue Service. “ARRA and the Additional Child Tax Credit” 31 Oct 2011.
National Council of La Raza. “Latinos Oppose Changes to Child Tax Credit Fact Sheet. 30 Jan 2012.
Govtrack.us “H.R. 1956: Refundable Child Tax Credit Eligibility Verification Reform Act.” Accessed 11 May 2012.
U.S. House of Representatives, Ways and Means Committee. “Budget Reconciliation Legislative Recommendations Relating to Social Security Number Requirements for Refundable Portion of the Child Tax Credit” 18 Apr 2012.
U.S. Congress, Ways and Means Committee. “Rep. Lewis on Child Tax Credit” YouTube video posted by committee Democrats. 18 Apr 2012.
U.S. Congress, Ways and Means Committee. “Rep. Pascrell on Child Tax Credit” YouTube video posted by committee Democrats. 18 Apr 2012, posted 19 Apr 2012.
U.S. Congress, Joint Committee on Taxation. “Description Of The Budget Reconciliation Legislative Recommendations Relating To Social Security Number Requirements For The Refundable Portion Of The Child Tax Credit” 17 Apr 2012.
McCaskill, Sen. Claire. Letter to Douglas Shulman, Commissioner, Internal Revenue Service. 7 Sep 2011.
Taylor, Andrew. “Payroll tax negotiations off to slow start” The Associated Press. 2 Feb 2012.
Steps Forward – and Back – on Tax Refunds for Illegals
By David North on November 8, 2017
There are provisions in the administration’s long, long tax proposal that relate to illegal aliens and tax refunds. Subdued rapture is the appropriate reaction.
I approach this with the following thoughts in mind:
- It is not a good idea to pay illegal aliens tax refunds for non-existent or illegal alien children;
- More broadly, it is not a good idea to pay anyone tax refunds unless they can submit what appears to be a legitimate Social Security number for the worker;
- It is not a good idea to encourage illegals to marry (or co-file 1040s) with citizens so that the former can get tax benefits otherwise denied;
- It is not a good idea to ask Congress to reduce tax refunds for illegal aliens in a specific area in which a regulation change can do the same thing more quickly; and
- The tax code should not be adjusted to encourage the births of more children, specially in low-income families, regardless of immigration status.
Further, while I am reacting to one part of the proposal that I know deals with illegal aliens, there may well be others in the legislation not known to me.
The Trump administration’s tax reform proposals, when examined carefully, seem to be right on the first two points, and dead wrong on the last three. (I am not enthusiastic about big tax breaks for the very rich, and the proposed abolition of the estate tax, but these are other issues.)
These thoughts came to mind after reading the following segment of HR 1, the proposed tax bill:
SEC. 1103. REFUNDABLE CREDIT PROGRAM INTEGRITY.
(a) SOCIAL SECURITY NUMBER REQUIRED TO CLAIM THE REFUNDABLE PORTION OF THE CHILD TAX CREDIT.—
(1) IN GENERAL.—Section 24(d), as amended by the preceding provisions of this Act, is amended by redesignating paragraph (5) as paragraph (4) and by adding at the end the following new paragraph:
(5) IDENTIFICATION REQUIREMENT.— ‘(A) IN GENERAL.—Paragraph (1) shall not apply to any taxpayer for any taxable year unless the taxpayer includes the taxpayer’s social security number on the return of tax for such taxable year.
(B) JOINT RETURNS.—In the case of a joint return, the requirement of subparagraph (A) shall be treated as met if the social security number of either spouse is included on such return.
The proposal to increase the additional child tax credit (ACTC) from $1,000 to $1,600 can be found elsewhere in the bill.
Let’s look at the five variables in turn:
- As background, currently the IRS interpretation of the law allows for the payment of ACTC benefits, but not other tax credits, for children who lack a Social Security number, but possess another IRS-generated number, the Individual Tax Identification Number (ITIN). The difference is that you have to be here legally to get the SSN. The result of this odd, apparently low-level, IRS decision is that the United States pays out about $4.2 billion a year in benefits to persons with ITINs; people, by definition, not eligible to work in the United States, according to a report done several years ago by my colleague Peter Schulkin. So demanding the SSN for ACTC benefits is a long overdue, good idea.
- This provision is puzzling, seemingly designed to make all taxpayers provide their Social Security numbers, which seems to have been IRS policy for a long time. It may serve some public purpose that is not clear to me, but it is certainly not harmful. It goes downhill from here.
- This allows tax refunds to be paid if either of the spouses has an SSN, which implies that if one is an illegal alien and the other is not, the earnings are covered by the legal one of the two. If this provision becomes well known it will encourage illegals to marry legal residents, or at least co-file 1040s with them to sanitize their earnings. This, in turn, will increase the amount of refunds paid to these families.
- The problem caused by refunds paid for persons with ITINs, which an inspector general for the Treasury Department said costs us $4.2 billion a year, relates to an in-house decision that ITINs are adequate for this purpose, as my colleague Jan Ting wrote recently. That pro-ITIN decision should be reversed by the IRS; if that could be done, then there would be no need to include such a provision in a big tax proposal that may or may not be approved.
- I am not sure that lifting the ACTC to $1,600 will be much of a factor in determining future birth rates, but it certainly can not discourage them. We have a large supply of people as it is; we don’t need more of them.
Incidentally the adjective additional is meant to qualify the term tax credit, not the word child. There has been for decades a tax credit that cuts your taxes for having dependents, but a few years ago Congress added an additional benefit: a sum of up to $1,000 that a taxpayer can receive for a child — a bonus that comes to those who qualify even if they do not pay any net income taxes.
The existence of this credit causes many low-income families to file their 1040s very promptly each year because it gives them up to $1,000 for each child under the age of 16. The family must report $3,000 in earned income to qualify and there have been examples of people claiming that level of earned income who did not, in fact, earn that much.