Subscribe

Will immigrants get a tax windfall from refundable credits?

Lawmakers scuttled an effort to permanently extend a number of tax breaks—largely because many feared it would open the door to widespread use of refundable tax credits by undocumented immigrants covered by President Obama’s recent executive order. Is their concern justified?

  • close
    Sen. Richard Blumenthal stands next to Jong-Min You and Sen. Dick Durbin as he speaks about immigration reform in Washington,December 10, 2014.
    Reuters/Larry Downing/File
    View Caption
  • About video ads
    View Caption
of

In the end-of-the-year congressional scramble, lawmakers scuttled an effort to permanently extend a number of tax breaks—largely because many feared it would open the door to widespread use of refundable tax credits by undocumented immigrants covered by President Obama’s recent executive order.  But is their concern justified?

Three sets of rules related to residency and citizenship govern eligibility for the three primary tax benefits for families with children – the dependent exemption, the Child Tax Credit (CTC), and the Earned Income Tax Credit (EITC). President Obama’s recent executive action will allow some parents of U.S. citizens or lawful permanent residents who have been in the country for at least five years to apply for limited work authorization. His initiative will not affect the dependent exemption or CTC but it will increase the number of parents who meet the citizenship and residency requirements for the EITC.

As background, the IRS doesn’t care what your legal status is—if you work in the United States and meet minimum income standards, you are legally required to file a tax return. To facilitate filing, the IRS assigns an Individual Taxpayer Identification Number (ITIN) to anyone who is not eligible to obtain a Social Security Number (SSN).

Recommended: Can immigration reform pass? Five senators to watch.

The dependent exemption has the most liberal eligibility requirements. If you have an ITIN and are the parent of a U.S. citizen child who lives with you in the U.S., Mexico, or Canada, your child qualifies. The same tests apply to the CTC (including the Additional Child Tax Credit—ACTC—which is the refundable portion of the CTC), except both parent and child must live in the U.S. EITC rules are most restrictive: The taxpayer and child must live in the U.S. and the taxpayer must have a Social Security number valid for work.

The Treasury Inspector General of Tax Administration (TIGTA) has insisted that children should meet the stricter EITC requirements to qualify for the ACTC. But that’s not how the IRS has interpreted the statute. Congress has routinely failed to pass legislation aimed at requiring SSNs to claim the ACTC (including in the most recent Congress).

It is unclear how many people granted work permits under the recent executive action will qualify for the EITC. But keep in mind that lawmakers of both parties often praise the EITC for encouraging work and reducing poverty. In addition, it usually serves as only a short-term benefit for recipients. The EITC, in conjunction with the CTC and the dependent exemption that these immigrants can already receive, can provide an important source of support for low-income families – but the executive action isn’t the major policy shift the critics claim it to be.

The post Will Immigrants Get A Tax Windfall From Refundable Credits? appeared first on TaxVox.

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on taxvox.taxpolicycenter.org.

 
 
Make a Difference
Inspired? Here are some ways to make a difference on this issue.
FREE Newsletters
Get the Monitor stories you care about delivered to your inbox.
 

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK