refundable tax credits to undocumented immigrant workers last year, according to a new Treasury audit.The IRS paid out billions in
Federal law bars illegal immigrants from collecting tax benefits, like the Earned Income Tax Credit, that can be claimed by residents with Social Security numbers. But the Treasury report found that the tax code’s lack of clarity is allowing the Additional Child Tax Credit (ACTC), which reduces taxes owed by certain individuals with children, to be heavily claimed by undocumented workers;if their tax bills dip below zero, they can collect government checks.
Even wages earned illegally in the U.S. are taxed. Individual Taxpayer Identification Numbers (ITINs) are available to people without Social Security numbers who cannot legally work in the U.S. so they can file tax returns. These ITINs have become increasingly linked to fraudulent tax claims, which helped inflate IRS payouts on the Additional Child Tax Credit from $924 million in 2005 to $4.2 billion, the report said.
“The payment of federal funds through this tax benefit appears to provide an additional incentive for aliens to enter, reside, and work in the United States without authorization, which contradicts federal law and policy to remove such incentives,” the report said.
The report attributed the massive outpouring of child tax credit refunds to recent expansions of the credit as part of the 2001 Bush tax cuts and the 2009 American Recovery and Reinvestment Act, the legislation that created the stimulus program.
In response to the report, IRS officials said they would follow one of its recommendations to meet with Treasury officials to determine whether people unauthorized to work in the U.S. can collect refundable tax credits. But the IRS rebuffed the audit’s second recommendation that it collect additional documentation from people claiming the ACTC, arguing that the agency lacks the legal authority to challenge such tax returns.
“Any suggestion that the IRS shouldn’t be paying out these credits under current law to ITIN holders is simply incorrect,” IRS spokesperson Michelle Eldridge told The Fiscal Times in a statement. “The IRS administers the law impartially and applies it as written. If the law were changed, the IRS would change its programs accordingly.”
The audit underscores a broader debate about the contribution of illegal immigrants to the U.S. economy, as well as who is ultimately charged with enforcing immigration law.
“The IRS doesn’t seem to think its job is to make sure people who are claiming these credits are entitled to them. The children may or may not be living abroad--or even exist. It’s absurd, almost a joke,” said Ira Mehlman, a spokesman for the Federation for American Immigration Reform, a group which advocates securing U.S. borders. “The IRS scares the heck out of most Americans, so there’s no reason why they shouldn’t be just as vigilant against people in the country illegally….especially when the deficit is topping $1.5 trillion.”
However, some groups argue that as members of U.S. Society who contribute to the economy, undocumented workers have every right to claim tax benefits.
An April study by the Institute for Taxation and Economic Policy found that undocumented immigrants paid $11.2 billion in taxes in 2010. It estimated that nearly half of all illegal immigrants pay income taxes.
“Undocumented immigrants are undoubtedly positive for the fiscal health of this country,” says Leticia Miranda, associate director of the Economic Policy Project at National Council of La Raza, a group that advocates for Hispanics in the U.S. She says that harping on the number of undocumented immigrants claiming this credit glosses over the bottom line that these workers are paying hefty sums into the Social Security trust fund, despite having no claim on the benefits. The Social Security Administration’s chief actuary estimated last year that undocumented immigrants had paid $120 billion to $240 billion into the Social Security trust fund as of 2007. “If you make it impossible for people to make those tax payments, that would be a self-inflicted wound to the budget of this country,” says Miranda.