Undocumented Immigrants Contribute $96.7 Billion in Taxes, Study Reveals

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In a comprehensive new report, the Institute on Taxation and Economic Policy (ITEP) sheds light on the significant tax contributions made by undocumented immigrants in the United States. Authored by Carl Davis, Marco Guzman, and Emma Sifre, the study reveals that undocumented immigrants contributed a staggering $96.7 billion in federal, state, and local taxes in 2022 alone, highlighting their indispensable role in sustaining public services and infrastructure.

All images courtesy of Institute on Taxation and Economic Policy

The $96.7 billion in tax revenue breaks down into $59.4 billion paid to the federal government and $37.3 billion contributed to state and local governments. This revenue supports essential services, including public education, healthcare infrastructure, and transportation networks, which benefit all residents. Remarkably, for every one million undocumented immigrants residing in the U.S., public services gain $8.9 billion in tax revenue.

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Undocumented immigrants contributed $33.9 billion in payroll taxes in 2022, funding critical social insurance programs such as Social Security, Medicare, and Unemployment Insurance. This includes $25.7 billion for Social Security and $6.4 billion for Medicare. Despite these substantial contributions, most undocumented workers are ineligible for the benefits these programs offer due to their immigration status.

The economic impact of undocumented immigrants is most pronounced in six key states, which collectively account for nearly two-thirds of all state and local tax collections from this demographic: California ($8.5 billion), Texas ($4.9 billion), New York ($3.1 billion), Florida ($1.8 billion), Illinois ($1.5 billion), and New Jersey ($1.3 billion). These figures underscore how concentrated undocumented populations bolster the budgets of high-population states.

In a striking revelation, the report found that in 40 states, undocumented immigrants pay higher effective tax rates than the wealthiest 1% of households. This is due in part to the regressive nature of sales and excise taxes, which disproportionately affect lower-income earners, including undocumented workers. On average, undocumented immigrants contribute 8.9% of their income to state and local taxes, compared to just 7.2% paid by the wealthiest 1%.

While undocumented immigrants comply with tax laws, many face systemic barriers to accessing the benefits of their contributions. They are often excluded from federal programs such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), further widening the economic disparities they face. In some cases, fear of deportation or lack of awareness prevents them from claiming tax refunds they are legally owed.

The report presents a compelling case for granting legal work authorization to undocumented immigrants. Such a move would not only benefit these workers but also significantly enhance public revenues. With legal status, undocumented immigrants could contribute an additional $40.2 billion annually in taxes, bringing their total contributions to $136.9 billion. Of this, $33.1 billion would flow to federal programs, while $7.1 billion would go to state and local governments.

Undocumented immigrants form a critical component of the U.S. workforce, representing 4.7% of all workers despite accounting for just 3.4% of the population. Nearly 97% of their income is derived from wages or self-employment, reflecting their significant participation in industries such as construction, agriculture, hospitality, and healthcare.

ITEP’s findings emphasize the need for equitable tax and immigration policies that acknowledge and amplify the contributions of undocumented immigrants. Policymakers are urged to consider reforms that not only grant legal status but also provide access to tax credits and other benefits that support economic mobility and family stability.

This report is a clarion call to recognize the essential role undocumented immigrants play in the U.S. economy. Beyond the numbers, it is a story of hard work, resilience, and the aspiration for a better future that defines the American spirit.

For a detailed breakdown of these findings, visit the Institute on Taxation and Economic Policy.

Source Credit: ITEP-Tax Payments by Undocumented Immigrants 2024.