In 40 states, undocumented immigrants pay higher effective tax rates than the top 1% of taxpayers

A new study from the Institute on Taxation and Economic Policy revealed the substantial tax contributions of undocumented immigrants in the United States and highlights the economic benefits of granting them work permits.

The study quantified taxes paid by undocumented immigrants at the national and state levels in 2022, revealing that for every million residing in the U.S., public services receive an additional $8.9 billion in tax revenue. Conversely, deporting the same number could result in a loss of $8.9 billion in tax revenue.

The study also concluded that granting work authorization to all current undocumented immigrants would significantly increase their tax contributions:

"Providing access to work authorization for undocumented immigrants would increase their tax contributions both because their wages would rise and because their rates of tax compliance would increase. Under a scenario where work authorization is provided to all current undocumented immigrants, their tax contributions would rise by $40.2 billion per year to $136.9 billion. Most of the new revenue raised in this scenario ($33.1 billion) would flow to the federal government while the remainder ($7.1 billion) would flow to states and localities.

One of the most revealing insights from the study is that a significant portion of the taxes paid by undocumented immigrants (more than one-third) goes to payroll taxes that fund programs like Social Security and Medicare, which they cannot access.

Additionally, income taxes paid by undocumented immigrants are affected by laws that often require them to pay more than U.S. citizens in similar situations, as they are typically ineligible for substantial tax credits such as the Child Tax Credit or the Earned Income Tax Credit.

Other important insights from the study were:

• Six states—California, Texas, New York, Florida, Illinois, and New Jersey—each collected over $1 billion in tax revenue from undocumented immigrants.
• In 40 states, undocumented immigrants pay higher state and local tax rates than the wealthiest 1% of households.
• The annual tax contributions of undocumented immigrants exceed the combined state budgets of Delaware, South Dakota, Montana, New Hampshire, Vermont, Idaho, Maine, Oklahoma, Alaska, Iowa, Wyoming, Nebraska, and Rhode Island.