Illegal Aliens pay Federal income and payroll taxes because ...

[HamdenRice]

I posted this in response to an OP, but decided to expand on it in its own thread because I think many people really don't understand this issue.

The vast majority of illegal aliens pay taxes -- and not just sales and local taxes. The vast majority pay federal income and payroll taxes, as well as state and local income taxes.

They do this because their employers have an overwhelming financial interest in deducting income and payroll taxes from their employees. That's because paying wages is a cost of doing business, and the employer must itemize this cost in his own profit accounting and tax returns.

Imagine a small construction company that had revenue of $200,000 in 2005. Imagine also that its only cost was wages. And imagine that its wage costs for a dozen or so workers, all illegal aliens, was $125,000.

If the employer pays his workers entirely "under the table" and in cash, then on the employer's own tax return it will look like he made $200,000 in profit and will be taxable on $200,000. If his tax rate is say 30%, then his tax bill will be $60,000.

If the employer pays his workers above board and pretends he does not know they are illegal, then on the employer's own tax return, it will look like he made $75,000 in profit -- that is, $200,000 minus $125,000 -- and his tax bill will be about $22,000.

So the employer must report his costs, including wages, in order to lower his own taxes.

But if he reports the $125,000 in wages as a cost, he must also withhold federal and state income and payroll taxes from the workers' paychecks. So, the illegal aliens pay the full amount of income taxes just like citizens, because the employer would be crazy not to do so.

The aliens may use phantom social security numbers and never file for refunds or seek social security retirement payments. But the main point is that they pay taxes because their employers make them do so.

The only employers of illegal aliens who do not withhold taxes are non-business employers, such as families who hire nannies and homeowners who hire gardeners -- because nannie payments and gardener fees are not deductible to the payor.

[JPZenger]

1. Cash Doesn't Show Up in Their Receipts

They pay day workers and illegals with cash that they take in from miscellaneous jobs. They often offer a cash discount to clients in order to get the cash they need to keep it off the books.

If they pay and report wage taxes, they must also pay social security taxes. What happens to the social security taxes if a worker does not have a real social security number???

[converted_democrat]

4. Well,

"What happens to the social security taxes if a worker does not have a real social security number???"

I would assume the government keeps the money, because they never file for a refund.. (Trying to get a refund would be really risky, they don't care about who's paying in, but they do care about who's getting a refund.) For a very short period of time I worked for a car dealership in my younger days.. The "illegal" would use real SS#, but of usually of dead a person.. When they would try and finance stuff it would sometimes show up.. There would be a 20 something person standing there trying to use the # of someone that the credit report said was 70- 80 years old.

Edited for clarity..

[Warren Stupidity]

8. Part of the SS 'surplus'

is a huge batch of 'no valid payee' receipts. I looked into this and it is currently something like 300B and growing. Anyone who thinks the immigration issue is simple is a fool.

[ellenfl]

20. 3008 out of 11 million? eom

[Warren Stupidity]

24. Collected over many years. Do the math.

[Warren Stupidity]

26. I just realized what your post meant. 300 "B" not 300 "8"

$300,000,000,000 is the amount in the SS trust fund that represents phantom accounts. It is a huge chunk of change and is partially funding SS solvency. Like I said, there are no simple answers to the immigration question.

[DBoon]

13. Yes, SS does keep the money, and the amount is HUGE!

A lot of illegals have boogus SS Cards, with numbers that are not really associated with any person.

The government is very happy to keep all this.

Your retirement is financed by illegal immigrants

[SoCalDem]

28. and some bosses do DEDUCT from employees checks,

but do NOT match FICA and mail in the other withholdings. They pocket it.. They know the employees have difficulty getting bank accounts, so I would bet that many "offer" to cash those checks and then might just tear up the check, having pocketed the money withheld and never matched and sent in..

Who will the employee complain to?

[JPZenger]

5. No Enforcement of Invalid Social Security Numbers

http://www.latimes.com/news/nationworld/nation/la-na-workplace30mar30,1,4529227.story?coll=la-headlines-nation

The above article provides a good description of the situation involving social security and illegal residents of the US. Most established employers report the social security number given to them by the illegal worker, and pay the social security taxes. The social security admin. notices that the name and the number don't match, but doesn't do anything about it. In fact, the Social Security Admin. is forbidden by law from reporting it to immigration officials.

The above article also says that very few employers use the Federal system that is available to check social security numbers of new hires. The law allows an employer to use almost any piece of paper to assume that the worker is legal, including their kid's report card.

[Cobalt Violet]

2. Where did you get the information?

Specifically "The vast majority of illegal aliens pay taxes"?
Do you have a link?

[HamdenRice]

6. I think you are missing the point of the post ...

In the immigration debate, the press has universally reported that illegal immigrants pay taxes. Someone in another thread asked why.

This is an explanation of why accounting and tax filing forces all above ground businesses to report wages as a cost, and therefore to withhold income and payroll taxes, even from illegal aliens.

Businesses just don't "skip" reporting costs, because every cost they don't report imposes a tax burden. I'm just trying to inform DUers of a concept from Accounting 101.

Can you see why in terms of accounting?

[July]

10. This was discussed here a few days ago.

At the time a report by the Social Security Administration was referenced that said, IIRC, that up to three-quarters of illegal aliens pay taxes and contribute $6 to $7 billion a year to the system. I don't know the name of the report, though. I'm sure someone here will be able to provide a link.

[LunaC]

18. Perhaps this will help

From the NATIONAL IMMIGRATION LAW CENTER


When an employer’s report contains wage reports
that include name/Social Security number (SSN)
combinations that do not match SSA’s records, SSA
conducts a series of electronic edit procedures to
correct mistakes, such as typographical errors or
other common reporting errors. If these procedures
do not result in a name/SSN combination that
matches SSA’s records, the wages are placed in the
Earnings Suspense File (ESF). As of July 2002, the
ESF contained approximately 236 million wage items
totaling about $374 billion. These figures represent
the total amount of uncredited wages reported from
TYs 1937 through 2000. In TY 2000 alone, SSA
posted 9.6 million items and $49 billion in wages to
the ESF. Wage items and their associated dollar value
are only removed from the ESF when the wages can
be matched and posted to an individual’s earnings
record.1

1 Social Security Administration, Office of Inspector General, Congressional Response Report: Social Security Administration Benefits Related to Unauthorized Work (A-03-03-23053), Mar. 18, 2003.


http://www.nilc.org/immsemplymnt/SSA-NM_Pack/C04_SSA_NM_Facts-e.pdf

[HamdenRice]

22. Now, now, don't you think the IRS has an interest in tracking down ..

the rightful persons to be credited with those $374 billion? They wouldn't keep that for the general fund, would they?

You must be a tin foil hatter.

As for me:

[LunaC]

19. See post #18 nt

[countryjake]

25. The recent SSA estimates now say it's around 92%

Illegal Immigrants Are Bolstering Social Security With Billions
By EDUARDO PORTER
New York Times April 5, 2005
http://www.nytimes.com/2005/04/05/business/05immigration.html?ex=1270353600&en=78c87ac4641dc383&ei=5090&partner=kmarx

~snip~

Starting in the late 1980's, the Social Security Administration received a flood of W-2 earnings reports with incorrect - sometimes simply fictitious - Social Security numbers. It stashed them in what it calls the "earnings suspense file" in the hope that someday it would figure out whom they belonged to.

The file has been mushrooming ever since: $189 billion worth of wages ended up recorded in the suspense file over the 1990's, two and a half times the amount of the 1980's. In the current decade, the file is growing, on average, by more than $50 billion a year, generating $6 billion to $7 billion in Social Security tax revenue and about $1.5 billion in Medicare taxes.

In 2002 alone, the last year with figures released by the Social Security Administration, nine million W-2's with incorrect Social Security numbers landed in the suspense file, accounting for $56 billion in earnings, or about 1.5 percent of total reported wages.

Social Security officials do not know what fraction of the suspense file corresponds to the earnings of illegal immigrants. But they suspect that the portion is significant.
"Our assumption is that about three-quarters of other-than-legal immigrants pay payroll taxes," said Stephen C. Goss, Social Security's chief actuary, using the agency's term for illegal immigration.

[GeorgeGist]

3. But wouldn't phantom SS numbers be a Red Flag?

The aliens may use phantom social security numbers and never file for refunds or seek social security retirement payments.

[Kingshakabobo]

7. I heard a guest on the "Ed Schultz" show talk about this last week.

According to this guest, one of the first things the bush administration did was to unplug the software that bounced invalid social security numbers back to the employers for verification and correction. Apparently, this was done at the request of one of the big lobbyists....IIRC Chamber of Commerce???

[Gormy Cuss]

9. In a word, no.

The IRS can recognize phony SSNs and can even guess at shared SSNs, but it's not high on the enforcement priorities when it comes to employers. Immigration law enforcement is not their problem (and yes, I recognize how screwed up that sounds but it is the essence of an article I read on this recently and no, I don't remember where it appeared -- sorry.)

[Warren Stupidity]

11. Who benefits?

There is no benefit to either the SS or the IRS to track down and eliminate phony accounts used to pay into the system. Making sure that the payout goes to a real qualified person is a different story - but as most of these phantom accounts are input only there simply is no financial incentive to stop them.

[Gormy Cuss]

14. Yes, that is the first question to ask.

Follow the money.

[wishlist]

12. The Social Security Administration admits billions in taxes from illegals

This is one of several articles that came out last year about the contributions made under bogus SS numbers through payroll withholdings to illegals. I have worked for the Federal Govt and can attest to the fact that this is a widespread occurrence for illegals to work and pay taxes from which they never get any benefits or refunds.

http://www.signonsandiego.com/uniontrib/20050410/news_mz1e10ruben.html


Usually the 'bogus' numbers are real numbers belonging to other people, often children or elderly. The IRS and SS catches the mismatch between the names and numbers and throws out the wage credits of the illegal so those wages are not permanently credited to the real holder of the SS number. However, before or when this problem is caught by govt or employer these workers go somewhere else to work to keep a step ahead of the lax and slow enforcement system.

[countryjake]

15. Ah, the Earnings Suspense File !

That massive pool of stolen funds, one of the hidden reasons the prez and his cronies would never welcome undocumented workers as true citizens in this country.

[Cleita]

16. Forget it. No one wants to know the facts in this issue.

I was a payroll bookkeeper in the restaurant business and I know for a fact that immigrants pay taxes because they are deducted from their wages. Most of them file tax returns every year too. This is one place employers stand to pay hefty fines to the IRS if they don't file what they pay out in payroll and the FICA and FIT taken out.

However, everytime I post this I get attacked because people don't want their pet accusations about immigration shot down by real facts.

[HamdenRice]

17. I think it's hard to understand for people who don't know accounting

That is, that even without the fines, the employer would want to at least declare he had paid wages to show reduced profits. Once he has deducted wages from profits, he must show he withheld the immigrants taxes, which is where the penalties come in.

It's arithmatic, pure and simple, but a lot of people can't or won't see it.

[Cleita]

21. Won't see it is the correct term because their bigotry won't

allow them to see it.

[Cobalt Violet]

30. I personally worked for a painting contractor who paid off the books.

He would pay people who wanted to be payed on the books on the books, others he would not for different reasons.

It's not that I can't or won't see it but that I have seen otherwise.

[ellenfl]

23. i am one of the un-enlightened (until now) and that makes

sense to me. so the only way to really do something about the problem is to go after the employers, which, of course, this admin will never do.

as long as we are a corporatocracy (aka fascist nation), there will always be illegals.

ellen fl

[Warren Stupidity]

27. How do you do that?

There really are no easy answers. Employers are presented with papers and duly record the numbers on those papers. Now we are going to toss them in jail if the numbers turn out to be bogus? Day labor type work arrangements don't exactly allow for extensive background checks.

A better answer is: enforce mininum wage requirements, raise the minimum to where it ought to be if it had been inflation adjusted, and establish a reasonable guest worker program. But that circles right around to: SS is partially funded through receipts from bogus accounts.

[HamdenRice]

29. Employers must be responsible for who they hire

The entire immigration debate is bogus to the extent that the undocumented aliens bear all the costs of the transaction and the employers are able to get off without any cost.

If employers had to certify that their employees were documented, the problem would end immediately. But everyone in power knows that the economy requires undocumented aliens so we have this kibuki theater system.