Yes. Undocumented immigrants pay federal, state, and local taxes, and they do so through the same channels as everyone else: payroll withholding on wages, self-employment tax on cash and contractor income, sales tax at the register, property tax on homes or built into rent, and, for many, an annual federal income tax return filed with an IRS-issued taxpayer number. The question of whether undocumented immigrants pay taxes has a straightforward answer in the tax code, which treats income earned in the United States the same regardless of the worker’s immigration status.
What differs is what they get back. Undocumented workers fund Social Security and Medicare with every paycheck but cannot draw benefits from those programs. They can file returns but are locked out of the two largest refundable credits available to low- and moderate-income families.
Payroll Taxes Come Out Automatically
Any undocumented worker on a formal payroll has federal taxes taken out before the paycheck is issued. Social Security tax is 6.2% of wages and Medicare tax is 1.45%, with the employer matching both.1Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax The withholding happens whether the Social Security number on file is valid, borrowed, or fabricated. The money leaves the paycheck and lands at the Treasury.
Federal income tax is also withheld based on the Form W-4 filled out at hiring.2Internal Revenue Service. Topic No. 753, Form W-4, Employees Withholding Certificate A worker who never files a year-end return still loses those withholdings; the government keeps the money, and without a return there is no way to claim a refund even after an overpayment.
When a name and Social Security number on a W-2 do not match Social Security Administration records, the reported wages go into the Earnings Suspense File, a holding account for contributions the agency cannot credit to any individual.3Social Security Administration. 20 CFR 422.120 – Earnings Reported Without a Social Security Number or With an Incorrect Employee Name or Social Security Number As of 2014, that file held more than $1.2 trillion in uncredited wages accumulated over decades.4Social Security Administration. Status of the Social Security Administration’s Earnings Suspense File A large share of that money comes from undocumented workers who will never collect retirement or disability benefits tied to those contributions.
Self-Employment Tax on Cash and Contract Work
Workers paid in cash or as independent contractors do not have an employer withholding payroll taxes for them. They owe self-employment tax instead, at a combined rate of 15.3% on net earnings: 12.4% for Social Security and 2.9% for Medicare.5Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) The obligation kicks in at $400 of net self-employment earnings for the year and is reported on Schedule SE with the Form 1040.
A W-2 employee splits the FICA burden with an employer. A self-employed worker pays the full 15.3% alone, though half of the self-employment tax is deductible when calculating adjusted gross income. Ignoring the obligation carries the same penalties as any other unfiled tax debt.
The ITIN: How Filers Without an SSN File
The IRS issues an Individual Taxpayer Identification Number to anyone who needs to file a federal return but is not eligible for a Social Security number. It is a nine-digit number authorized under the tax code’s requirement that every person on a return have an identifying number.6Office of the Law Revision Counsel. 26 USC 6109 – Identifying Numbers An ITIN is strictly a tax-reporting tool. It does not authorize work, change immigration status, or qualify anyone for Social Security benefits.7Internal Revenue Service. Individual Taxpayer Identification Number (ITIN)
A filer applies with Form W-7 submitted alongside a federal tax return and identity documents. The return itself is the same Form 1040 that every other individual taxpayer uses.8Internal Revenue Service. Forms and Instructions When a W-2 shows a different Social Security number than the filer’s ITIN, the wages are reported using the SSN as it appears on the W-2, while the ITIN is entered as the identifying number on the return.
An ITIN expires after three consecutive years of non-use on a return, going inactive on December 31 of that third year. Renewal is a new Form W-7 with updated documentation.9Internal Revenue Service. How to Renew an ITIN
Sales, Property, and State Income Taxes
Beyond federal payroll and income taxes, undocumented residents pay the same state and local taxes as anyone living in their community. Sales tax is collected at the register on every taxable purchase, with combined state and local rates averaging roughly 7.5% nationwide and running past 10% in the highest jurisdictions. No documentation is required from the buyer, and there is no way to opt out.
Property taxes are paid directly by undocumented homeowners to their county. Renters pay them indirectly, since landlords build the cost into monthly rent. These revenues fund public schools, fire departments, and local services.
Most states with an income tax expect ITIN holders to file state returns as well. The ITIN was designed for federal purposes, but state tax agencies generally accept it as a valid identifier.7Internal Revenue Service. Individual Taxpayer Identification Number (ITIN) Someone who earned income in a state that taxes income owes that state a return.
Taxes Paid, Benefits and Credits Denied
The obligations run in one direction more than the other. Undocumented workers pay into Social Security and Medicare through wage withholding or self-employment tax but cannot collect retirement, disability, or Medicare benefits from those contributions.
Two of the largest tax credits for working families are also unavailable. The Earned Income Tax Credit requires a valid Social Security number for the taxpayer, any spouse, and every qualifying child; ITIN holders are excluded entirely.10Internal Revenue Service. Who Qualifies for the Earned Income Tax Credit (EITC) The Child Tax Credit requires each qualifying child to have a Social Security number valid for employment, issued before the return’s due date. A child with an ITIN does not qualify. A smaller Credit for Other Dependents, worth up to $500 per dependent, is available when the dependent has an ITIN.11Internal Revenue Service. Child Tax Credit
An ITIN filer commonly ends up paying more in net federal tax than a similarly situated worker with a Social Security number: same tax rates, same withholding, fewer credits, and no future Social Security or Medicare benefits. Skipping the return does not fix the imbalance. The failure-to-file penalty is 5% of unpaid tax per month up to 25%, and workers who had taxes withheld but never filed simply forfeit any refund they were owed along with the documented record of compliance that can matter later.12Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax
Are Tax Filings Shared With Immigration Authorities?
Federal law generally keeps tax return information out of other agencies’ hands. Section 6103 of the tax code makes returns and return information confidential and bars IRS employees from disclosing them except under narrow statutory exceptions, which cover state tax agencies, court-ordered disclosure in non-tax criminal investigations, and coordination with the Social Security Administration on payroll tax matters.13Office of the Law Revision Counsel. 26 USC 6103 – Confidentiality and Disclosure of Returns and Return Information14Internal Revenue Service. Disclosure Laws
That protection is being tested. In 2025, the Treasury Department and the Department of Homeland Security signed an agreement letting Immigration and Customs Enforcement submit names of suspected undocumented residents to the IRS for cross-verification against tax records. The IRS reportedly matched roughly 47,000 individuals out of nearly 1.3 million names submitted. Federal courts have reached conflicting conclusions about whether the arrangement violates Section 6103, with at least one judge blocking the data sharing and an appeals panel declining to do the same.
As of early 2026, the legal situation is unsettled. The statutory rule against routine disclosure of tax data for immigration enforcement still stands, but it is actively contested in court. The legal duty to file and pay taxes is not affected by that dispute.