Illegal immigrants do indeed pay taxes, possibly more per capita than many citizens and legal immigrants.
Some illegal immigrants have social security numbers (SSNs). The Social Security Act requires that a social security account be opened for anyone that earns wages. The Social Security Administration (SSA) issued thousands of SSN’s, at least, to illegal immigrants prior to 1972 due to that statutory requirement. The requirement has not been repealed or even altered since it’s original passage. Nevertheless, SSA changed its regulations in 1972 to require an applicant to submit proof of citizenship or legal residency before SSA would issue an SSN. That was especially odd because in the introduction to the amended regulation, SSA reiterated its statutory requirement to issue SSN’s to illegal aliens for federal tax purposes (see below).
SSA had, and technically still has (but more on that later), an additional statutory requirement under the Internal Revenue Code (IRC) to issue SSN’s to anyone needing one to file a federal tax return or to be claimed as a dependent on a tax return. SSA was still issuing SSN’s to illegal aliens as late as 1998 under that provision. Additionally, up until 1999, SSA was issuing SSN’s to anyone who could not otherwise get one and who needed it to meet a requirement imposed by a state government. For example, to get a drivers license.
In 1996, IRS started issuing individual tax identification numbers (ITINs). An ITIN can be used to meet any identification requirement (with the exception of the one for the earned income tax credit) imposed by the IRC. So SSA’s obligation to issue SSN’s for tax purposes has essentially been taken on by the IRS. ITIN’s can be used on bank accounts, Forms W-4, W-2, 1040, etc. The ITIN cannot serve as proof of residency for INS’s Form I-9. Therefore, many, if not most, illegal aliens show their employers bogus social security cards to satisfy the I-9 requirement. As a result, the bogus SSN shows up on their W-2. Many illegals never file a tax return. Of those that do, some file using the bogus SSN and others file using a properly obtained ITIN.
Most workers, citizen, legal and illegal alike, are over withheld. There are several reasons for that, including a complete lack of motivation on the part of the IRS to discourage the practice. An illegal who doesn’t file gives up his refund. In addition, because he used an incorrect SSN, he effectively has paid nothing into the social security system because he can’t document it, so he will receive no retirement benefits. So he pays social security taxes without the offsetting benefits.
An illegal who files using an incorrect SSN may eventually get a refund. He may forfeit his social security benefits. There are too many variables to consider all the cases. An illegal who files using his ITIN will receive his refund, but won’t get the earned income credit. Because the earned income credit was intended, among other things, to reduce a worker’s social security tax, the ITIN filer who would otherwise be eligible for EIC is taxed at a higher effective rate than a similarly situated citizen. Again, it’s a crap shoot as to whether he’ll be able to prove he has paid in to social security in order to get benefits.