Obama order could mean refund checks for immigrants in U.S. illegally
By Kevin G. Hall
McClatchy Washington Bureau
03/04/2015 3:02 PM - The Sacramento Bee
WASHINGTON - President Barack Obamafs executive order on immigration will allow people whofve been
working in the country without documents to retroactively file tax returns for
the past three years and collectively get about $1.7 billion in refundable tax
credits over 10 years.
Itfs a little known consequence of the executive order on immigration
announced shortly before Thanksgiving, and whose implementation is presently
held up in the courts.
Republican lawmakers are scrambling to pass legislation that would limit the
ability of the workers to file tax returns for years before their immigration
status changed under the executive order and qualify for a tax refund that on
average for other taxpayers has been about $2,300 per person.
Under Obamafs executive order, eligible workers would be given Social
Security numbers, and that would allow them to work legally while the order is
in effect. They could file a 1040 tax return, or amended returns for three years
prior – the statute of limitations for amending a tax return – and potentially
qualify for the refundable Earned Income Tax Credit.
gThose who were working illegally in the United States shouldnft be rewarded
for doing so,h Sen. Charles Grassley, R-Iowa, said in a statement to McClatchy.
gThat would have the effect of allowing retroactive benefits. My proposal would
prohibit those granted deferred action from claiming the EITC for any year they
were working without authorization in the United States.h
McClatchy obtained an estimate by the congressional Joint Committee on
Taxation, done for Grassley and Senate Finance Committee Chairman Orrin Hatch,
R-Utah. It shows the additional EITC refunds under the program could cost
taxpayers $1.7 billion over 10 years, almost all of it in the first five
years.
Obamafs immigration order overall is actually expected to bring in almost $20
billion in new revenue over a 10-year period after implementation, according to
the nonpartisan Congressional Budget Office. Thatfs because new immigrants would
be paying into Social Security and having taxes withheld from paychecks.
Repealing the order would add to projected deficits. But allowing previously
undocumented workers to quickly collect a government check for a time when they
werenft here legally is hardly a good optic for Obama and Democrats.
The Earned Income Tax Credit was created to help move individuals off of
welfare rolls and into employment. It provides a tax benefit to low-income
earners based on what they actually earn. It is grefundable,h meaning workers
who have no federal income tax liabilities get the balance of the credit in a
check from the government.
Allowing the new immigrants to apply retroactively for the EITC is similar to
green card holders being able to seek the credit when they get a Social Security
number, as is the case now.
The Internal Revenue Service recently reviewed guidance dating to 2000 and
upheld that the determining factor on getting the Earned Income Tax Credit
refund is a Social Security number, not immigration status.
gThe rationale is, if you were in the country and there is some process in
which you become legal, we want to go ahead and treat you as if you were legal
the whole time,h said Elaine Magg, a senior research associate for the
nonpartisan Tax Policy Center, jointly run by the centrist Urban Institute and
center-left Brookings Institution.
What Republicans blast as gamnesty bonusesh are also akin to what political
refugees can now do under tax law – amend prior tax returns once their
immigration status has changed.
But Grassley maintains Congress explicitly closed this avenue to undocumented
workers in 1996 and argues that this is being ignored by the IRS.
gIf we want these folks to be citizens then we give them Social Security
numbers, and they are subject to the same tax laws others are subject to, and in
some cases that will mean they will get the refundable credit,h said Maag,
calling the issue easily fixable if Congress wants to restrict the ability to
retroactively claim the tax breaks afforded in Obamafs executive order.
Bills already have been introduced in the House of Representatives and the
Senate to do just that.
Undocumented workers presumably have been working off the books or with
falsified documents. They will have to present proof that they were paid or were
self-employed over the previous three years. If they were using a false taxpayer
ID number, they could now amend returns for the past three years and plug in
their new Social Security number.
The IRS could audit these returns to guard against fraud, but because the tax
returns involve very low income levels, the IRS would not get much bang for the
buck with such audits.
The Joint Committee on Taxation estimate is based on a model of expected
behavior and not past actions, given that there hasnft been a similar situation
on which to build a best guess. It also does not estimate how many of the
undocumented immigrants might have changed to legal status anyway through
marriage or other avenues.