Erika K. Lunder
A question that often arises is whether unauthorized aliens and other foreign
nationals working in the United States are subject to U.S. taxes. The
federal tax consequences for these individuals are dependent on (a)
whether an individual is classified as a resident or nonresident alien and (b) whether
a tax treaty or totalization agreement exists between the United States and the individual’s
In general, an individual is a resident alien if he or she is a lawful
permanent U.S. resident or is in the United States for a substantial
period of time during the current and past two years (the “substantial
presence” test). Otherwise, he or she will typically be classified as a
nonresident alien. Resident aliens are generally taxed in the same manner
as U.S. citizens. Nonresident aliens are subject to different treatment,
such as generally being taxed only on income from U.S. sources. Exceptions
exist for aliens with specific types of visas or employment.
An individual who is in the country unlawfully is, like any other alien,
classified as either a resident or nonresident alien. This classification
is for tax purposes only, and it does not affect the individual’s
immigration status. These individuals’ eligibility to claim the earned income
tax credit is restricted because the tax code requires that taxpayers
claiming the credit provide their Social Security number (SSN), as well as
those of their spouse and dependents. Unauthorized aliens are ineligible
for SSNs, and therefore file their tax returns using an individual taxpayer identification
number (ITIN). In the 112th Congress, legislation has been introduced that
would, with some differences, impose an SSN requirement for claiming the
additional child tax credit (e.g., H.R. 3630, H.R. 5652, H.R. 3275, and
H.R. 1956), for claiming any part of the child tax credit (H.R. 344 and S.
577), or for claiming any credit or refund (e.g., H.R. 1196). Two of these bills—H.R.
3630 and H.R. 5652—have been passed by the House; however, H.R. 3630 was enacted
into law (P.L. 112-96) without the provision.
Finally, the provisions of an income tax treaty or totalization agreement may
reduce or eliminate taxes owed to the United States. An income tax treaty
is a bilateral agreement between the United States and another country
that addresses the income tax treatment of each country’s residents while
in the other country, primarily with the intent of reducing the incidence of
double taxation. Totalization agreements are bilateral treaties that
address social security taxes. In 2004, the United States signed a
totalization agreement with Mexico, but it has not yet been transmitted to Congress
for review. In the 112th Congress, the Consolidated Appropriations Act, 2012
prohibits the Social Security Commissioner or Social Security
Administration (SSA) from using any of the funds appropriated by the act
to pay compensation to SSA employees to administer Social Security benefit
payments under any U.S.-Mexico totalization agreement that would not otherwise
be payable. Other legislation has been introduced that would state it is the
sense of the House that the U.S.-Mexico totalization agreement “is
inappropriate public policy and should not take effect” (H.R. 1196), or
address a constitutional issue with the manner in which totalization agreements
are disapproved by Congress (S. 181).
Date of Report: May 18, 2012
Number of Pages: 9
Order Number: RS21732
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