You’ve probably heard the argument a thousand times at Sunday dinner or on a frantic cable news scroll. The idea is usually that undocumented people are a total drain on the system, taking everything and giving back zero. But honestly? If you look at the actual ledger at the IRS or state treasury offices, the math tells a much weirder, more complicated story.
Basically, the answer is a resounding yes. They pay. A lot.
In 2022, undocumented immigrants contributed nearly $100 billion in federal, state, and local taxes. To be exact, the Institute on Taxation and Economic Policy (ITEP) pegged that number at $96.7 billion.
Think about that for a second. That's nearly a hundred billion dollars flowing into a system that many of these people can never fully access. It’s a massive subsidy for the rest of the country.
How do illegal immigrants pay taxes without a Social Security Number?
This is the part that trips people up. "How can you file a return if you aren't supposed to be working here?"
The IRS isn't the Border Patrol. Their job is to collect money, period. Since the mid-90s, they’ve issued something called an ITIN (Individual Taxpayer Identification Number). It’s a processing number for people who aren't eligible for a Social Security Number but still have a legal obligation to report their income.
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The IRS actually likes ITIN filers. They are some of the most consistent taxpayers because many believe that having a paper trail of "good moral character" through tax compliance might help them if there’s ever a pathway to legal status.
The ITIN Paper Trail
In 2022 alone, roughly 3.8 million tax returns were filed using an ITIN. These returns accounted for billions in taxable income. But it's not just the people filing forms. A huge chunk of the tax revenue comes from people who don't file anything at all.
Many undocumented workers use a fake or "borrowed" Social Security Number just to get a job at a construction site, a restaurant, or a farm. When they do this, the employer treats them like any other employee. They withhold federal income tax, Social Security, and Medicare.
The worker never sees that money again. Since the SSN doesn't match a real person (or matches someone else), that money goes into the Social Security Earnings Suspense File. It just sits there, padding the retirement fund for everyone else.
The Trillion-Dollar Subsidy
The Social Security Administration has admitted that undocumented immigrants are a "net positive" for the system's solvency.
- Social Security: Undocumented workers paid about $25.7 billion in 2022.
- Medicare: They chipped in $6.4 billion.
- Unemployment Insurance: Another $1.8 billion.
Here is the kicker: in almost every case, they can't claim these benefits. If you’re undocumented, you can’t draw Social Security when you retire. You can't hop on Medicare. You generally can't even get unemployment if you get laid off, even though your employer paid into it on your behalf.
It’s essentially a donation to the U.S. government.
What about state and local taxes?
Even if someone is working "under the table" for cash and never touches an IRS form, they are still paying taxes every single day.
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Unless you live in a state with no sales tax, like Oregon or Delaware, you’re paying every time you buy a gallon of milk, a pair of jeans, or a six-pack of beer. Undocumented immigrants contribute heavily to state and local coffers through:
- Sales and Excise Taxes: This makes up about 46% of their state-level contributions.
- Property Taxes: Even if they rent, a portion of that rent goes toward the landlord’s property tax bill. This funds local schools and police departments.
- Gas Taxes: Every time they fill up the tank to get to work.
Six states—California, Texas, New York, Florida, Illinois, and New Jersey—each collect over $1 billion annually from undocumented residents. In Florida, for example, the effective tax rate for undocumented immigrants is actually higher (about 8%) than it is for the top 1% of earners in the state (about 2.7%).
Recent Shifts and the 2025/2026 Landscape
Things have gotten a bit more tense recently. As of April 2025, there was a major policy shift where the Department of Homeland Security and the Treasury Department started discussing more data sharing.
Historically, the IRS kept tax data private to encourage people to pay. But new agreements have started allowing ICE to access certain tax filer information for criminal investigations. This has experts at places like The Budget Lab at Yale worried.
If people are afraid that filing taxes will get them deported, they’ll stop filing. Yale’s researchers estimate this could lead to a $25 billion loss in federal revenue by 2026.
When people move from "above-the-table" jobs to the "informal economy" because of fear, the government loses the withholding. No more Social Security contributions. No more Medicare padding. The system actually gets weaker.
Common Misconceptions: The "Drain" Argument
Critics often point to the cost of public education and emergency room visits. It’s true that these cost money. Local school districts have to educate every child regardless of status.
However, when you look at the lifetime fiscal impact, the numbers often flip. A report from the Tax Policy Center noted that over a lifetime, an immigrant (even one without a high school degree) typically pays about $200,000 more in taxes than they receive in government benefits.
They are also barred from most "safety net" programs. They can't get SNAP (food stamps) or most forms of welfare. The Earned Income Tax Credit (EITC), which is a huge help for low-income American families, is mostly off-limits to them. If a family has even one person filing with an ITIN, the whole family is often disqualified from the EITC.
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Actionable Insights: What This Means for the Economy
Understanding the tax reality of undocumented immigrants isn't just about politics—it's about the bottom line of the U.S. budget.
If you are looking at this from a business or policy perspective, here is the reality:
- Mass deportation has a price tag: Beyond the logistics, the U.S. stands to lose roughly $8.9 billion in tax revenue for every 1 million undocumented immigrants removed.
- Legalization would actually increase revenue: ITEP estimates that if the current undocumented population had work authorization, their tax contributions would jump by $40 billion a year because their wages would rise and compliance would be easier.
- Social Security's lifeline: The "Suspense File" is one of the few things keeping the Social Security trust fund from depleting even faster than it already is.
Ultimately, whether you think the border should be closed or open, the financial data is pretty clear. Undocumented immigrants aren't just consumers in the American economy; they are significant, and often silent, investors in its infrastructure and social safety nets.
To stay informed on how these numbers affect your local economy, you can check the ITEP state-by-state data maps which show the exact breakdown of sales, property, and income tax contributions in your specific area. Keeping an eye on IRS policy changes regarding ITIN privacy will also be key through 2026 as these new data-sharing agreements play out.