Column: Undocumented residents shouldn’t be left out of Michigan tax policy

July 17, 2020 6:10 am

Michigan Capitol | Susan J. Demas

Tax returns were due this week after being postponed four months. But while we all have to pay the “taxman,” I want to talk about some taxpayers that many people don’t know about. 

Undocumented residents make significant tax contributions (including to our country’s entitlement funds like Social Security and Medicare), and many of them use an Individual Tax Identification Number (ITIN) to do so. ITIN filers are an important segment of our population that are often left out when it comes to tax policy. According to data from the Institute on Taxation and Economic Policy (ITEP), there are nearly 69,000 ITIN filers in Michigan, including 33,000 adults and 35,000 kids.

While ITIN filers make economic contributions in the form of income taxes, their overall “spending power,” which is the money someone has to spend after federal and state and local taxes (SALT) are taken out, is even greater.

The Michigan League for Public Policy released estimates on immigrant spending power in Michigan as part of an in our state and county immigration fact sheets. After federal taxes and SALT are paid, those who were not born in the U.S., regardless of immigration status, have an estimated $18 billion in spending power in Michigan. Approximately 10% of this spending power in the state, at $1.8 billion, is exclusively held by undocumented immigrants. 

One way to increase the amount of spending power that tax filers have is through refundable tax credits. Tax credits reduce the amount of taxes owed by those who are filing and, if refundable, provide a boost to help taxpayers pay for daily necessities and put money back into local economies. Yet few tax credits are available to undocumented families who have filed their taxes.

Despite undocumented residents contributing to our tax base, ITIN filers are only eligible for the Child Tax Credit (CTC) and the Additional Child Tax Credit (the former’s refundable portion), plus the qualifying child must have a Social Security Number (SSN). In Michigan, nearly 90% of children in immigrant families are citizens. Plus, more are either citizens or lawful permanent residents (“green card” holders), meaning that many of these “mixed-status” families can claim the CTC because their children have an SSN. 

But currently, that’s all they can claim. Michigan should allow ITIN filers the ability to claim additional tax credits, particularly our state’s Earned Income Tax Credit, or EITC. Currently, families with one adult who is an ITIN filer or a dependent who is an ITIN filer are unable to receive either the federal EITC or state EITC. 

The EITC is a proven-effective way to help families pay for necessities and raise families above the poverty line. Because Michigan supplements the federal EITC with its own state credit, Michiganders who claim the EITC see an additional boost of 6 percent of their federal credit (though we at the League recommend that it be restored to 20%). 

ITEP has estimated that expanding our state’s EITC to ITIN filers would be a windfall for local economies. Approximately 12,440 tax returns in Michigan (out of 17,000 that are eligible) would be expected to participate and receive a state EITC. Yet a “return” is a unit that measures single filers as well as joint filers and does not include the number of dependents on that return.

That means there would actually be many more than 12,440 adults and children who would benefit from an expansion of the state EITC to ITIN filers. As for Michigan’s economy, ITEP estimates that expanding the EITC to ITIN filers would put nearly $2 million back into it. That comes out to be $158 per tax filer, which is even more than the average impact on Michiganders who file their taxes with an SSN. 

About one-fifth of children in Michigan, regardless of where their parents were born, live below the poverty threshold. Expanding EITC access to ITIN filers is a step our state can take to make a dent in that number, specifically among families with undocumented residents. The benefits are clear: provide families a needed boost, increase their spending power, improve child health and spur the local economy along the way. 

It’s time to expand the EITC to ITIN filers and allow undocumented taxpayers to get the same credit as other taxpaying Michiganders — literally.  

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Simon Marshall-Shah
Simon Marshall-Shah

Simon Marshall-Shah is a state policy fellow at the Michigan League for Public Policy. He previously worked in Washington, D.C,. at the Association for Community Affiliated Plans (ACAP), providing federal policy and advocacy support to nonprofit, Medicaid health plans (Safety Net Health Plans) related to the ACA Marketplaces.