I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.
See all posts Frank GogolGuide to Taxes for Dreamers
Updated on April 9, 2024
Written by
Written by
Reviewed by
Rohit Mittal
Reviewed by
Rohit Mittal
Rohit Mittal is the co-founder and CEO of Stilt. Rohit has extensive experience in credit risk analytics and data science. He spent years building credit risk and fraud models for top U.S. banks. In his current role, he defines the overall business strategy, leads debt and capital fundraising efforts, leads product development, and leads other customer-related aspects for the company. Stilt is backed by Y Combinator and has raised a total of $275M in debt and equity funding to date.
See all posts Rohit Mittal
At a Glance: Dreamers, or DACA recipients, do pay taxes just like regular Americans. With a Social Security Number (SSN), they can file taxes and claim tax credits such as the Earned Income Tax Credit (EITC) and Child Tax Credit. If they have an Individual Taxpayer Identification Number (ITIN), they can still file taxes, but they may not be eligible for certain credits. It’s important for Dreamers to comply with tax filing requirements and renew their ITIN if necessary.
In 2012, children with unlawful presence in the US were granted visa status which prevented them from being deported. They were termed as “Dreamers” under the Deferred Action for Childhood Arrivals or DACA Immigration Policy. This also allowed them to continue their education and work within the US just like any regular American (not without restrictions, though).
As per a report, Dreamers contributed almost $5.7 billion to the US federal tax system. But do Dreamers have to pay their taxes? Are they considered as taxable individuals under us tax regulation?
Do Dreamers Pay Taxes?
DACA recipients, also known as “Dreamers”, are a group of people (or children, per se) who were bought into the US without proper documentation. It was only in 2012 that then-President Barack Obama introduced the DACA act.
Among the many benefits they received, they were protected from being deported and were allowed to stay in the US for a period of two years. This didn’t make them eligible for citizenship and voting, though. DACA also granted them the right to get employed and work for a living. This means, along with family ties, Dreamers also have economic ties with the nation, which have them pay their taxes.
As of 2018, there were a total of between 690,000 to 800,000 people covered under the DACA policy, most of them staying in California. In 2015, the ratio was 1:4, i.e., one out of every four DACA recipients stayed in the US.
California was also the state which collected the highest tax from them, roughly $2.1 billion in federal tax and $1 billion in local and state tax. Texas was second which collected $750 million and $418 million in federal and state and local tax respectively.
Most of these funds were used for funding community programs which include health insurance covering low-income residents, infrastructure development, subsidizing public schools, etc.
So the answer to the question – Do Dreamers pay taxes? Yes, they do pay their taxes just like regular Americans.
DACA Taxes with an SSN or ITIN
Changes related to tax filings were made with the introduction of Dreamers in 2012. Many people find these changes confusing and hard to comply with. In this section, we’ll break it down for you for easier consumption.
DACA Taxes for SSN
SSN, which stands for Social Security Number, is a unique identification number provided to every citizen and a certain group of non-citizens. Anyone who has been issued this number must file their taxes with the IRS.
If you have been provided with any other tax identification number but now you have your SSN number, then you must file your taxes with SSN. Your previous tax identification number became invalid the moment you were issued SSN.
This is true for DACA recipients. You can apply for SSN after you receive your EAD or Employment Authorization Document. Even after your EAD gets expired, you’re required to continue to file taxes for your earnings with the IRS.
After this (and meeting all other eligibility requirements), you can claim your Earned Income Tax Credit (EITC). With SSN filing, you are also eligible to draw tax credits including Child Tax Credit. But if your DACA status expires and you lose your work permit, then this will make you ineligible for EITC claim.
DACA Taxes for ITIN
ITIN, which stands for Individual Taxpayer Identification Number, is issued to individuals who have been given an EAD but are ineligible for an SSN. The ITIN gets expired if either you become eligible for SSN or you haven’t filed your tax for the last 3 years.
If the middle digits of your ITIN are 70, 71, 72, 78, 79, or 80, then it means that it is expired. You can file your tax as an expired ITIN, but IRS will not entertain your refund claims even if you are eligible for receiving them. As opposed to SSN, ITIN holders aren’t eligible for EITC either, but may qualify for CTC and other credit benefits.
If your ITIN gets expired, here are the steps for renewing it:
- Mail the completed Form W7 to the IRS along with original identification documents.
- Go to your nearest Certified Acceptance Agent (CAA) who can assist you with verifying key documents.
- Schedule and attend the appointment with a local IRS Taxpayer Assistance Center. The officers will assist you in renewing your ITIN at the earliest.
Read More
- Why Was No Federal Income Tax Withheld From My Paycheck?
- Why Do I Owe Taxes?
- Why Do I Owe State Taxes?
- Are You Exempt from Federal Withholding?
- How to File Taxes With No Income
- Can You File Taxes Without a W2?
- H1B Taxes: Everything You Need to Know
Conclusion
Being a Dreamer, filing your tax on time will strengthen your application for permanent residency and will also help you in getting a green card. The cleaner and timely you keep your tax filings, the better the chances. While there are chances looming of invoking a ban on DACA policy, it’s highly unlikely at least in the near future.
Frank Gogol
I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.