Federal CTC and EITC

End the Tax Penalty Against Immigrant Workers

04. 14. 2020

Allowing all working families who qualify to receive cash tax credits they earn would strengthen all communities and boost the economy.

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The Earned Income Tax Credit is a powerful path out of poverty in America, but millions of immigrant households are barred from receiving it, even though they would otherwise qualify based on their work and earnings. Allowing all working families who qualify to receive the credits they earn would strengthen all communities and boost the economy. 

The Earned Income Tax Credit (EITC) is a financial lifeline for millions of workers. The EITC is one of the most powerful paths out of poverty in America. Last year, the federal EITC helped 25 million workers and families with an average boost of almost $2,500 at tax time1. The impact is significant: tax refunds from the EITC can be as much as a 45% increase in a family’s annual income2. Recipients rely on them to catch up on bills, buy necessities, or save for emergencies3.

But the federal and state tax codes discriminate against many immigrants who work and pay taxes. Workers without a “working” Social Security number (SSN) are barred from receiving the federal EITC, even though they would otherwise qualify based on their work and earnings. State EITCs, which generally base eligibility on the federal credit, contain the same disqualifying restriction. Those hit the hardest by this restriction are immigrant workers who use the lawful methods the IRS provides to pay their taxes, including:

  • Workers who file their taxes using a federally assigned Individual Taxpayer Identification Number (ITIN). ITIN holders include: undocumented workers, student visa holders, some family members of workers with employment visas, and some survivors of domestic violence. 
  • U.S. citizens who claim any family member without an SSN on their taxes, including children;
  • Other workers whose work authorization has expired and are therefore no longer “lawfully present,” especially Deferred Action for Childhood Arrivals (DACA) recipients and Temporary Protected Status (TPS) holders, whose lapse in status is due to the Trump Administration’s move to rescind these statuses and the uncertainty surrounding the corresponding ligation.  

Excluding immigrant families is antithetical to the goals of the EITC. Promoting work and reducing poverty, particularly among families with children, are primary goals of the EITC. The credit allows the lowest-wage workers to earn a higher credit with each dollar earned. But the exclusion of immigrant families undermines this incentive. Even though immigrant families make the same contributions to their workplaces, local economies, and communities as EITC-eligible families, they are excluded from receiving the tax credits they earned.

The exclusion of ITIN filers and other immigrant families diminishes the EITC’s power to improve the wellbeing of children. The EITC is structured to support families with children, and has a long and successful track record of reducing poverty among those families. Research also shows that children whose parents receive the credit gain lifelong benefits4. Denying tax-paying immigrant families access to one of our most powerful financial lifelines exacerbates challenges for immigrant workers and flies in the face of the stated goals of the EITC.

There are no good policy reasons to deny immigrant families the tax credits they’ve earned. Immigrants in the U.S. today are facing an onslaught of anti-immigrant policies from the current administration – including the recent revocation of the Child Tax Credit for a million immigrant children, mostly Dreamers, through the Republican Tax Cuts and Jobs Act5.

It can’t be ignored that most immigrants in the U.S. are people of color6. Depriving workers of critical financial lifelines based on where they were born is discrimination that props up patterns of institutional and systemic racism.

Denying immigrant workers the EITC operates as a tax penalty against 2.4 million immigrant households. Recent research by the Institute on Taxation and Economic Policy (ITEP) reveals that our current system denies 2.4 million immigrant families the benefits of the federal EITC. Nearly 1.6 million immigrant households, many of the same families who would also be eligible for federal credits but for the exclusion, are excluded from state EITCs7.

Allowing immigrant families access to the same tax credits would strengthen state and local economies. Workers are the backbone of the economy from the national to local level. Improving the financial security of all workers, regardless of immigration status, would encourage growth and prosperity across the country. Workers with more money in their pockets can more easily meet their families’ needs and participate in their local economies.

The attached tables from the Institute on Taxation and Economic Policy show the state-by-state impact of excluding ITIN filers from the federal EITC and state EITCs. For each state, they show: the total number of eligible filers;  the estimated number of actual recipients (based on each state’s EITC uptake rate); and the total benefits that would be distributed under each scenario. For more information on methodology, visit ITEP.org.

  1.  IRS, “EITC Fast Facts,” http://bit.ly/31Ilt61. 
  2.  Center on Budget and Policy Priorities, “Policy Basics: The Earned Income Tax Credit,” December 2019, http://bit.ly/2vcERfh. 
  3.  Center on Budget and Policy Priorities, “Policy Basics: The Earned Income Tax Credit,” December 2019, http://bit.ly/2vcERfh. 
  4.  Marr, et al., “EITC and Child Tax Credit Promote Work, Reduce Poverty, and Support Children’s Development, Research Finds,” Center on Budget and Policy Priorities, October 2015, http://bit.ly/2HmCr0v.
  5.  Samantha Washington, “Child Tax Credit and Earned Income Tax Credit Lifted 10.6 Million People out of Poverty in 2018,” Center on Budget and Policy Priorities, October 2019, http://bit.ly/2uuSkit.
  6.  Jynnah Radford, “Key findings about U.S. immigrants,” Pew Research Center, June 2019, https://pewrsr.ch/2UO83UH. 
  7.  Institute on Taxation and Economic Policy analysis, March 2020 using SPEC Returns Database for the ITIN market segment for tax year 2015 and ITEP’s Microsimulation Tax Model.