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How do estimates account for undocumented immigrants versus legal immigrants in tax contribution studies?
Executive summary
Studies separate undocumented from legally present immigrants by using different data sources and modeling assumptions: researchers count tax filings tied to ITINs and wage/earnings files, and then adjust for nonfilers and underreported income to estimate total tax paid by undocumented people (e.g., estimates that undocumented immigrants paid about $96.7 billion in federal, state, and local taxes in 2022) [1][2]. Authors also model counterfactuals — what tax payments would look like if undocumented people obtained work authorization — and typically find legalization would raise reported income and tax revenues because legal status reduces barriers to filing and increases wages [3][4].
1. How researchers identify undocumented taxpayers: ITINs, surveys and indirect matches
Analysts rely on indirect markers because tax forms do not record immigration status; one observable signal is the Individual Taxpayer Identification Number (ITIN) used by people ineligible for Social Security numbers — ITIN filings (over 2.5 million returns in 2019) provide a lower‑bound for undocumented filers and are a key input in many studies [5][6]. Complementary approaches include census and survey microdata, and administrative wage files; because the IRS does not ask about legal status on tax returns, researchers triangulate across these sources to approximate the undocumented population that pays taxes [5].
2. Adjusting for non‑filers and hidden earnings
Studies recognize many undocumented workers do not file or use false SSNs, so estimates adjust upward from observed ITIN returns and matched W‑2s to account for nonfilers and underreported cash wages. For example, ITEP and related analyses apply tax parameters to adjusted economic data and make “certain adjustments to reflect the ways in which undocumented immigrants interact with the tax code,” explicitly modeling that undocumented people face “harsher” incentives not to comply and therefore require corrections to observed filings [3][7].
3. Counting different kinds of taxes and benefits: federal, state, local, payroll
Analyses break out tax types because undocumented immigrants interact with the system unevenly: payroll taxes and sales/property taxes are commonly captured even by non‑citizen workers, while eligibility for tax credits and later benefit receipt differs. ITEP’s 2022 tabulations report a total of $96.7 billion in federal, state, and local taxes paid by undocumented immigrants and show state/local shares (about $37.3 billion to state and local governments) [8][1]. TaxPolicyCenter and others emphasize that undocumented workers still have income and payroll taxes deducted and often fund programs (even if they may be ineligible to receive benefits later) [6][5].
4. Counterfactuals: estimating the effect of legalization on tax receipts
Many studies run counterfactual scenarios that simulate tax collections if undocumented people gained work authorization. The logic and modeled channels are consistent: legal status reduces barriers to compliance, boosts wages and job opportunities, and thus increases both income‑tax filing and taxable earnings. ITEP and others estimate legalizing work authorization would raise income tax revenues and overall tax contributions — e.g., ITEP projects billions in additional federal and state revenue under legalization scenarios [3][7][4].
5. Key methodological uncertainties and divergent views
Sources repeatedly note core uncertainties: the true share of undocumented people who pay taxes (CBO reviews have ranged 50–75%), degree of underreporting, and how remittances or informal cash work are handled in models [9][10]. Some reporting stresses that while many studies find large tax contributions by undocumented immigrants (e.g., near $96.7B), other research points to net fiscal costs in certain contexts — available sources do not provide a unified fiscal verdict and different assumptions (about services used, demographic composition, or benefit eligibility) produce divergent conclusions [2].
6. Practical implications for interpreting headline numbers
When you see a headline dollar figure, know it reflects choices: which data proxy was used (ITINs vs. census vs. wage files), how nonfilers and informal earnings were adjusted, which tax types were summed, and whether a counterfactual (legalization) was modeled. For instance, ITEP’s $96.7B number for 2022 is an aggregate across federal, state and local taxes derived from applying tax parameters to adjusted economic data; the same research emphasizes that granting work authorization would likely increase those amounts [1][3].
7. Conflicts of interest and institutional perspectives
Different institutions bring implicit agendas: advocacy groups and policy shops that favor legalization tend to emphasize estimates showing large current contributions and sizable gains from legalization [3][11], while analyses focused on fiscal balance sometimes highlight potential net costs depending on service usage assumptions [2]. Readers should match claims to the methodological appendix: studies that publish state‑by‑state tables and adjustment methods (e.g., ITEP) allow more transparent assessment [8][7].
8. Bottom line for readers
Estimates separate documented from undocumented taxpayers by using ITIN filings and indirect data, then model upward to capture nonfilers and unreported earnings; they also run legalization counterfactuals that consistently show higher reported tax revenues under legal status. However, core uncertainties about underreporting, remittances, and service‑use assumptions mean different studies can reach different net‑fiscal conclusions — check each study’s data choices and assumptions before treating any single headline number as definitive [5][3][1].