Undocumented Immigrants Taxes: All You Need to Know to File
Immigrants are the fastest growing working group in America, accounting for 17% of the labor force in 2017. Of that group, 26% were undocumented. In 2019, undocumented workers paid over $30 billion in taxes.
If you’re an undocumented worker, your tax situation is especially challenging. You have:
- Extra forms to deal with (which only recently got translated to Spanish)
- More rules and regulations
- Added anxiety about the repercussions of getting it wrong
In this article I’m going to calm your fears about filing and give you all the tools you need to do it right.
Do you need to file a tax return?
Yes. If you’re an undocumented worker who earns money in the United States, you’ll have to pay taxes on that income (as long as you’re earning a certain amount, which we’ll go over later.)
The taxes you have to pay are:
- Income taxes
- Social Security and Medicare taxes
- State and local taxes
Should you file taxes if you get paid under the table?
Yes. It’s still a good idea to file even if you get paid in cash — meaning, no one filed any forms reporting your income to the IRS.
Why? Well for starters, it’s the law. Anyone who earns money in the US has to file taxes reporting it. Beyond that, filing taxes actually makes it easier to get citizenship or permanent legal residency later on.
I’ll get into that more in a moment. But for now, all you need to know is that you should probably be paying taxes — regardless of your documentation.
Let’s talk about why.
When do undocumented immigrants have to file taxes?
For undocumented people, tax filing requirements have nothing to do with your immigration status. Instead, they’re based on two factors:
- How long you’ve been in US
- How much you earn in the US
When you’ve been in the US “for a long period of time”
Many undocumented immigrants actually count as “US residents” for tax purposes. This means that you:
- Have to pay taxes, namely Social Security, Medicare, and Income taxes
- Have to report your worldwide income
- Have to file taxes by April 15, or October 15th with extensions
You’re considered a US resident if you’ve lived in the US for a long period. This based on what the IRS calls the “substantial presence” test.
How long do you have to live in the US to count as a resident?
A “long period of time” is defined by the IRS as having lived in the US for:
- 31 days in a row, and
- 183 days during the past three years
If this describes you, then you’re a US resident for tax purposes.
Of course, it’s not quite that simple. In classic IRS fashion, determining whether you’re a resident is unnecessarily complicated. There are rules on what counts as a “day,” and on how to add up the three years. Check out our article on taxes for US residents for an in-depth guide.
When you’ve earned a certain amount of income
All US residents — including undocumented period — have the same “income reporting thresholds” as US citizens and green card holders. An income reporting threshold is the amount you have to make to be required to file a tax return.
For citizens and undocumented immigrants alike, there are two thresholds:
- Income higher than your standard deduction (a tax break every American taxpayer gets to claim — currently $12,950 for single people and $25,900 for married couples)
- $400 in self-employment income
If either one applies, you have to file a tax return.
Many undocumented people are self-employed, so it’s worth noting that the threshold for self-employment income is much lower.
How the income reporting thresholds work
Let’s look at an example: Adam, a single taxpayer worked a part-time job last year and earned $8,000. He also drove for Uber and earned another $700 after business write-offs — what he spent on working as a rideshare driver. (More on that below!) His total income is $8,700.
Adam’s standard deduction is $12,550, so he doesn’t meet the first income reporting threshold. However, his self-employment income from Uber is higher than $400, so he’ll have to file a tax return anyway.
It’s never fun to file taxes, but in this case, it’s better for Adam to file. That’s because he’ll:
- Probably get a refund of some of the taxes withheld from his W-2 paycheck
- Establish a track record of tax compliance, which will make him a good candidate for legal residency later
If you want to skip the headache of tax filing, consider trying Keeper! Our app tracks your business write-offs throughout the year, and imports them directly into your taxes when you file.
Will filing a tax return get you in trouble?
No! The IRS follows strict non-disclosure laws with other government branches. Meaning, your information won’t be reported to Immigration Customs Enforcement (ICE) or any other law enforcement agency unless they have a court order first. The IRS cares about your taxes, not your residency status.
If anything is going to get you in trouble, it would be not filing your taxes when you’re clearly supposed to. Tax evasion is a crime that can be committed by documented and undocumented residents alike. The best thing you can do to stay out of trouble is file your taxes on time.
How filing taxes can help you get legal residency and citizenship
Paying your taxes increases your likelihood of qualifying for legal residency down the road. It demonstrates that you’re law-abiding and want to be in good standing with the US government. In other words, you exemplify “good moral character.”
Can you file taxes without a Social Security number?
Yes! Every tax return requires an ID number accompanying the filing, but it doesn’t have to be a Social Security Number (SSN).
For undocumented residents (and nonresidents), the alternative is an Individual Tax Identification Number (ITIN). You can apply for one with the first tax return that you file, and will last for up to 10 years before needing to be renewed.
What you can — and can’t — do with your ITIN
An ITIN can basically only be used to file taxes. It can’t be used to apply for W-2 jobs or to open lines of credit. And despite the fact that you pay into things like Social Security, your ITIN doesn’t qualify you to receive benefits from those programs. Yup, you read that right.
How to file taxes as an undocumented resident
The first step is knowing what forms you’ll need. Undocumented taxpayers use the same forms as everyone else, namely:
- Form 1040
- Schedules 1-3
If you have self-employment income, you will also use:
What tax breaks can undocumented residents claim?
If you’re undocumented, you can claim many of the same write-offs as documented residents — for example, the standard deduction and business write-offs. These write-offs — also known as tax deductions — lower the amount of income you get taxed on.
You’re also eligible for some tax credits, a different kind of tax break that lowers your tax bill directly.
Due to the difficulty in qualifying for traditional W-2 jobs, many undocumented workers earn self-employment income instead. If that’s you, good news! You can subtract business write-offs from that income, lowering the amount of money you get taxed on.
What counts as a business write-off?
A business write-off is simply something you bought for work. This could be anything from car expenses to work supplies to more creative costs, like a home gym if you’re a personal trainer. (Here’s a list of common 1099 write-offs for inspiration.)
If you’re not sure what counts, try out the Keeper app! Our app syncs with your bank and credit card accounts to find every eligible write-off in your industry.
Some tax credits
A tax credit is the most powerful type of tax break. It lowers your tax bill dollar-for-dollar. Some credits are even refundable, which means the government will pay them out to you if your tax bill is zero.
Undocumented workers can claim most – but not all — tax credits.
Why undocumented immigrants can’t claim some tax credits
The ones you’re not allowed to claim has to do with your tax ID number. Certain credits are only offered to taxpayers with Social Security numbers.
Attorney David Aylor, who has written about immigration law, calls out a one tax credit that you don’t need a Social Security number to claim: the American Opportunity Tax Credit (AOTC). This is available to undocumented workers as long as they “applied for an [ITIN] before the file date on their tax return.”
Aylor notes that the AOTC is “valuable for students, enabling them to claim up to $2,500 of education expenses.” However, you have to “make less than $80,000 a year to be eligible for this credit.”
Below is a summary of all the credits you are eligible to take:
Tips to stay compliant
While its important for all taxpayers to stay on top of their taxes, undocumented workers have to be especially careful. Here are two ways to stay on top of your tax liability:
Tip #1: Make estimated tax payments
If you expect to owe more than $1,000 on their taxes, I recommend making quarterly estimated tax payments. Essentially, this means paying taxes four times a year instead of once, on April 15th.
Not sure how much to pay? Check out our quarterly tax calculator for in-depth guidance.
Why making estimated payments is a good idea
Estimated tax payments will help you:
- Avoid late payment penalties
- Manage your tax burden throughout the year
Why might you have to pay penalties? It’s because the US has a pay-as-you-go tax system. This means taxes are due when your money is earned, not when your tax return is filed.
How to handle your estimated payments
You can make your payments two ways;
- By mail
If you pay by mail, you’ll have to include a 1040-ES form with your check. (The IRS doesn’t accept cash).
If you don’t have an ITIN number yet, you can write “ITIN TO BE REQUESTED” where the tax ID should be.
Tip #2: File a tax extension
April 15th comes up fast. If you’re caught off guard by the deadline, you can request a six-month extension of time. This means your new filing deadline with be October 15th.
Filing an extension won’t save you from underpayment penalties, which are 0.05% of your tax due. But it will save you from failure to file penalties, which are 0.5% of your tax due.
When to take advantage of tax extensions
Extensions are a good way to buy yourself some breathing room so that you can do your taxes the right way.
Taxpayers regularly miss out on write-offs because they’re feeling rushed at the last minute. In moments like that, it’s better to request the extra time and make sure you aren’t missing anything.
How to handle your tax extension
To file a tax extension, you’ll use Form 4868. This can be submitted electronically or by mail. If you’re filing through Keeper, we’ll submit extensions on your behalf free of charge.
If you haven’t received an ITIN number yet, write “ITIN TO BE REQUESTED” where the tax ID number should be.
There’s no denying that filing taxes is more complicated for undocumented workers. But it doesn’t have to be an impossible undertaking.
As long as you keep track of your records, stay mindful of deadlines, and download the Keeper app, you’ll be well on your way to success!
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At Keeper Tax, we’re on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please email firstname.lastname@example.org if you have questions.