Ability of Unauthorized Aliens to Claim Refundable Tax Credits

Summary

In 2011, the Treasury Inspector General for Tax Administration (TIGTA) reported that individuals who were not authorized to work in the United States received $4.2 billion by claiming the refundable portion of the child tax credit—the additional child tax credit (ACTC). The ACTC is available to working families with children under age 17. The report sparked considerable concern that unauthorized aliens were obtaining refundable tax credits. The TIGTA audit was based upon an analysis of tax returns filed by persons with Individual Taxpayer Identification Numbers (ITINs). The Internal Revenue Service (IRS) issues ITINs to individuals who are required to have a taxpayer identification number for tax purposes but are not eligible to obtain a Social Security number (SSN) because they are not authorized to work in the United States. All aliens, including those who are in the country illegally, are generally subject to federal taxes under the Internal Revenue Code (IRC), and even income illegally obtained is subject to taxation.

A refundable tax credit is one where the taxpayer may receive a payment from the IRS that exceeds his or her tax liability. Examples include the earned income tax credit (EITC), the additional child tax credit, the American opportunity tax credit, and the health coverage tax credit. While the EITC requires SSNs of all recipients, the other existing credits, including the ACTC, do not. Similarly, several now-expired credits included an SSN requirement, while others did not. Apart from any SSN requirement, the IRC also expressly prohibits nonresident aliens from claiming some refundable credits.

In addition to the specific provisions of the IRC, the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 (P.L. 104-193) bars unauthorized aliens from any federal public benefit except certain emergency services and programs. So defined, this bar covers many programs whose enabling statutes do not individually make citizenship or immigration status a criterion for participation. The legal question arises as to whether any refundable tax credits are federal public benefits, which under PRWORA unauthorized aliens should be barred from receiving. There is no indication that the IRS considers any refundable tax credits to be subject to PRWORA Section 401. Looking to the statutory text, it is arguably unclear whether refundable credits should be treated as federal public benefits, although there is a strong argument that at least some should not (e.g., the credit for taxes withheld). It does not appear that any court has examined this issue or that the IRS has issued guidance on it.

The EITC and ACTC are the largest refundable tax credits—in 2009 taxpayers claimed $53.0 billion and $27.5 billion of each credit, respectively—and primarily benefit working families with children. Estimates derived from the March Supplement of the U.S. Census Bureau’s Current Population Survey (CPS) indicate that the unauthorized resident alien population was 11.2 million in 2010. The Pew Hispanic Center reported that two-thirds of the unauthorized resident alien population have resided in the United States for 10 or more years. The report also found that the proportion of unauthorized aliens who have been in the country at least 15 years has more than doubled since 2000. Pew researchers have also found that unauthorized aliens tend to be younger than the U.S. population overall and more likely to be in the child-bearing and child-rearing years. As a consequence, an estimated 46% of unauthorized adults are parents of minor children.