Undocumented Immigrants Pay Up on Tax Day

At the state and local level alone, undocumented immigrants nationwide collectively pay an estimated $11.64 billion each year in taxes, according to a recent report by the Institute on Taxation and Economic Policy. Our calculations, based on academic, congressional, and think-tank research, show that total includes more than $6.9 billion in sales and excise taxes, $3.6 billion in property taxes, and over $1 billion in personal income taxes.

Undocumented immigrants pay sales and excise taxes when they pay their electric bills, buy toiletries, or fill up at the gas station. One third of them are homeowners who pay property taxes directly on their homes. Those who rent pay property taxes indirectly through higher rent to their landlords. Many undocumented immigrants also pay state income taxes. The best evidence suggests that at least 50% of undocumented immigrant households currently file income tax returns, and among those who don’t file, many still have taxes withheld from their paychecks.

While the state and local tax contributions of undocumented immigrants vary by region, we found that undocumented immigrants nationwide pay on average 8% of their incomes in taxes to state and local governments. In contrast, the top 1% of taxpayers nationwide pay on average just 5.4%.

Undocumented immigrants already are helping to fund our federal, state and local governments and services like public schools, road repairs, and police and fire protection. If more of them were granted legal status, our research shows that their state and local tax contributions would increase.

For example, the Institute on Taxation and Economic Policy analyzed the impact of full implementation of President Obama’s 2012 and 2014 executive actions on the state and local tax contributions of undocumented immigrants. Those potentially affected by these executive actions (an estimated 5 million or 46% of undocumented immigrants) would pay an additional $805 million a year in state and local taxes. Personal income tax collections would increase by $442 million a year, sales and excise taxes by $239 million, and property taxes by $124 million. As a result, the overall state and local taxes paid by this subset of the undocumented immigrant population as a share of their income would increase from 8.1% to 8.6%.

If all undocumented immigrants in the country today were granted legal status through comprehensive immigration reform, their state and local tax contributions would increase by an estimated $2.1 billion a year. Personal income tax collections would increase by more than $1 billion a year, sales and excise taxes by $695 million, and property taxes by $360 million. As a result, the overall state and local taxes paid by all undocumented immigrants as a share of their income would increase from 8% to 8.6%.

The ability to work legally in the United States leads to higher earnings as a result of better job opportunities and access to better training. Legal status also leads to more income tax returns being filed, due to strong incentives and requirements for legal residents to fully comply with the tax laws. That means more revenue for state and local governments to meet demands for important public services.

No matter where you stand personally on the issue of immigration or what you think the U.S. should do about the 11 million undocumented immigrants currently living here, the fact is that undocumented immigrants pay billions of dollars in state and local taxes each year and would contribute more under immigration reform. These contributions are significant to local governments and economies and should be part of the broader discussions on immigration policy moving forward.

Lisa Christensen Gee, a senior policy analyst with the nonpartisan, left-leaning Institute on Taxation and Economic Policy, is co-author of the group’s report on state and local tax revenue paid by undocumented immigrants. Read the full report here.