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Fact check: How does the IRS track tax payments from undocumented workers?
Executive Summary
The IRS primarily tracks tax payments from undocumented workers through tax filing channels that do not require a Social Security number—principally the Individual Taxpayer Identification Number (ITIN)—and through employer withholding regimes that apply to nonresident and other workers. Recent developments in 2025, notably a memorandum of understanding (MOU) between the IRS and U.S. Immigration and Customs Enforcement (ICE), create pathways for taxpayer information to be shared with immigration authorities, a change that may reduce voluntary compliance and shift enforcement toward employer audits and payroll investigations [1] [2] [3] [4].
1. How the tax system gives undocumented workers a paper trail that the IRS can follow
The IRS provides a formal mechanism—the ITIN—for individuals without a Social Security number to meet federal tax-filing obligations; ITIN filers must submit tax returns and report wages, creating a documented record of income and payments that the IRS can match against employer information and withholding records. The ITIN program is explicitly for federal tax purposes and does not authorize employment or Social Security benefits, and the IRS accepts returns with ITINs while disallowing some credits such as the Earned Income Tax Credit, which affects compliance incentives [1] [2]. Separately, nonresident aliens are subject to statutory withholding rules, including a general 30 percent withholding on compensation for services in the United States unless exempted, generating additional withholding-based records that the IRS can use to track payments and reconcile employer filings with individual returns [5]. The result is a dual tracking system: individual-based ITIN filings and employer-based withholding and reporting, both creating actionable datasets for the IRS.
2. Why the IRS-ICE agreement changes the calculation for filing taxes
In April 2025, reporting indicated that the IRS and ICE agreed to share taxpayer information under an MOU, which broadens circumstances in which tax records could support immigration enforcement actions [3] [6]. This operational shift introduces a direct link between tax compliance and immigration risk, potentially discouraging undocumented workers from filing returns or applying for ITINs despite legal tax obligations and even when filing could yield tax refunds or documentation of tax payments. Analysts noted this could produce a decline in voluntary compliance and increase the use of tax data for immigration investigations, altering the traditional expectation that tax filing is a confidential civic duty separate from immigration enforcement [7] [4]. The MOU also signals that the government may pivot toward enforcement strategies that use employer tax records to identify patterns of payroll noncompliance.
3. How enforcement pressure moves from individuals to employers
Coverage of the MOU emphasizes that one tangible consequence will be heightened scrutiny of employers for payroll noncompliance and hiring practices, since employers generate the withholding and employment records that reveal undocumented labor use. Reports in April 2025 anticipated increased civil and criminal payroll enforcement actions targeting businesses that hire undocumented workers, using tax filings and withholding mismatches as leads [3] [6]. This suggests a practical enforcement path for authorities: rather than attempting to collect from individuals who may be hesitant to engage with the tax system, investigators can pursue employers for failure to withhold, file, or remit taxes properly—actions that leave a strong paper trail and are easier to investigate without directly depending on cooperation from undocumented employees [6]. Thus, taxpayer information functions both as a revenue tool and as evidence in employment-focused enforcement.
4. What the historical tax rules mean for current tracking tools
Longstanding IRS practice treats wages and compensation paid for U.S. services as taxable and subject to withholding rules for nonresident aliens; these rules predate the 2025 MOU and underpin the agency’s ability to track payments through employer filings and withholding documentation [5]. The ITIN program, in place and described in IRS guidance from 2017, formalizes the way undocumented or non-SSN taxpayers enter the system for federal tax purposes, requiring documentation of identity and tax purpose and creating a persistent identifier the IRS can use for matching and compliance work [1] [2]. These established administrative tools enable the IRS to reconcile wage reporting, withholding, and individual returns—capabilities now coupled with expanded data-sharing arrangements that affect how that information may be used beyond tax administration [1] [5].
5. The practical trade-offs and likely behavioral effects to watch
Observers in April 2025 warned that the MOU and related public reporting could reduce the willingness of undocumented workers to file taxes or apply for ITINs, leading to underreporting and reduced tax revenues despite the existing legal obligation to pay taxes [4] [7]. At the same time, enforcement is likely to focus on employers and payroll controls where documentation is more accessible and enforcement levers stronger, potentially increasing audits and penalties for businesses while complicating efforts to collect from individuals who go unreported. Policymakers and practitioners should weigh the trade-off between detecting immigration-related violations and preserving the confidentiality incentives that encourage tax compliance; the evidence presented in these sources shows that changes in data-sharing policy materially alter that balance [3] [6].