What happens to payroll taxes of illegal immigrants

Executive Summary — Short Answer Up Front (two sentences, concise conclusion)

Undocumented workers routinely pay payroll and income taxes using ITINs or Social Security numbers, and estimates place their total federal, state and local tax contributions near $96–97 billion in 2022, including billions labeled as Social Security and Medicare payroll taxes ^{[1] [2] [3]}. Policies and enforcement changes — notably the 2025 IRS–ICE memorandum of understanding and potential behavioral responses by employers and workers — create large uncertainty about future collections and compliance, with modeled revenue losses or shifts ranging from modest near‑term declines to multibillion-dollar impacts over a decade ^{[4] [5]}.

1. What people claim — Who pays what and why this matters

The core public claims extracted from the sources are: undocumented immigrants pay substantial payroll and income taxes; they fund social insurance programs they cannot fully access; and enforcement or data‑sharing changes could reduce their tax filing and push more work “off the books.” Multiple analyses quantify the tax payments: one nonprofit estimate puts $96.7 billion in total taxes paid by undocumented immigrants in 2022, including $25.7 billion to Social Security and $6.4 billion to Medicare ^[1]. Reuters’ fact‑check and other summaries corroborate near‑$97 billion totals and note ITIN filing is the common compliance pathway ^{[2] [6]}. The significance is twofold: these payments represent real revenue to federal, state and local treasuries, and policy shifts could change the mix of formal versus informal employment, altering future tax flows ^[4].

2. How payroll taxes are actually collected from undocumented workers

U.S. tax law requires withholding on wages regardless of immigration status when employment is reported. Undocumented workers commonly file with an Individual Taxpayer Identification Number (ITIN); some also work under Social Security numbers. Employers must withhold Social Security, Medicare, and income taxes and file payroll returns, and undocumented status does not exempt workers from those withholding rules ^[7]. Studies and tax‑policy analyses document the practical outcome: millions of dollars flow into payroll tax accounts from wages paid to people without lawful status, yet many of these workers remain ineligible for some federal benefits tied to those contributions, creating a gap between payments made and benefits received ^{[6] [3]}.

3. Where those payroll dollars go — Funds collected but benefits often blocked

The money withheld as payroll taxes flows into federal trust funds and general revenues the same way as payroll taxes from citizens. Estimates attribute large shares of undocumented immigrants’ tax payments to Social Security and Medicare payroll levies — figures such as $25.7 billion for Social Security and $6.4 billion for Medicare in 2022 appear in analyses ^[1]. However, legal eligibility rules generally prevent many undocumented workers from claiming Social Security retirement benefits or Medicare unless they later acquire qualifying status; that creates a situation where workers subsidize programs they cannot access, a recurring point in debates about fairness and fiscal impact ^[6].

4. The IRS–ICE data‑sharing shock: Enforcement changes that could alter collections

A 2025 memorandum of understanding enabling IRS data sharing with ICE aims to help immigration enforcement but has immediate tax policy consequences: analysts warn it could reduce tax compliance among unauthorized workers out of fear that tax filings will trigger immigration actions ^{[5] [4]}. Modeling presented by one analysis suggests potential federal revenue losses ranging from tens of billions in the near term to over $300 billion across a decade under adverse behavioral scenarios, although those numbers depend heavily on assumptions about how many workers stop filing or shift to cash pay ^[4]. The MOU also may increase audits and employer investigations, elevating risks for employers and potentially incentivizing more informal, untaxed labor arrangements ^[5].

5. Estimates, uncertainties, and competing agendas — Reading the numbers carefully

The recent studies converge on the headline that undocumented immigrants pay substantial taxes, but magnitude and interpretation differ. Nonprofit tax‑policy estimates and Reuters fact checks cluster near $96–97 billion for 2022 and note state‑level variations and limited benefit eligibility ^{[1] [2] [6]}. Projections about future revenue impacts tied to enforcement or legalization scenarios diverge widely because they hinge on behavioral responses: legalizing authorization could raise reported wages and tax revenues by an estimated $40.2 billion annually in one study, while fear and avoidance triggered by data sharing could produce large losses in other models ^{[1] [4]}. Stakeholders — immigrant‑rights groups, fiscal watchdogs, and law‑enforcement advocates — emphasize different pieces of this evidence to support contrasting policy goals; the data are robust on current collections but much less certain on dynamic effects.

Bottom line: undocumented workers currently contribute meaningful payroll tax revenue, those dollars are collected under standard withholding and ITIN filing systems, and policy shifts — both legalization and enforcement/data‑sharing — are likely to change future collections substantially, but the direction and scale of change depend on uncertain behavioral responses and policy details ^{[1] [2] [5]}.