Ability of Unauthorized Aliens to Claim Refundable Tax Credits
Released: 2012-07-26T00:00:00

The ability of unauthorized aliens to claim federal refundable tax credits has received considerable scrutiny. In a July 2011 study, the Treasury Inspector General for Tax Administration (TIGTA) reported that individuals who were not authorized to work in the United States received $4.2 billion by claiming the refundable portion of the child tax credit—the additional child tax credit (ACTC). The ACTC is available to working families with children under age 17. This issue is complicated by the differences in legal classifications of foreign nationals/aliens (e.g., "employment-authorized alien," "legal permanent resident," "resident alien," and "qualified alien") across the federal immigration, tax, and welfare laws.

The TIGTA audit was based upon analysis of tax returns filed by persons with Individual Taxpayer Identification Numbers (ITINs). The Internal Revenue Service (IRS) issues ITINs to individuals who are required to have a taxpayer identification number for tax purposes but are not eligible to obtain a Social Security number (SSN) because they are not authorized to work in the United States. The number of tax forms filed with ITINs has increased from 1.55 million in 2005 to 3.02 million in 2010. It is unclear how many of these individuals who filed with ITINs were unauthorized aliens or part of mixed-status families that included U.S. citizens or legally present aliens as well as unauthorized aliens.

This report opens with an explanation of refundable tax credits and follows with an overview of unauthorized resident aliens. The report proceeds to analyze the federal tax status of unauthorized aliens and their eligibility for refundable tax credits, including a legal analysis of whether refundable tax credits are "federal public benefits" under Section 401 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). The report concludes with a discussion of selected policy options.

Refundable Tax Credits

Tax credits allow taxpayers to reduce their tax liability dollar-for-dollar up to the value of the credit. Credits are either nonrefundable or refundable. By definition, the value of nonrefundable tax credits cannot exceed a taxpayer's income tax liability. In contrast, refundable tax credits can be larger than a taxpayer's income tax liability, with the taxpayer receiving the difference (or part of the difference in the case of partially refundable tax credits) as a cash payment from the IRS. As a result of this distinction, refundable tax credits can be claimed by taxpayers with little or no income tax liability, which includes many low-income tax filers.

The existing refundable tax credits include

the earned income tax credit (EITC); the additional child tax credit (ACTC), which is the refundable portion of the child tax credit; the American opportunity tax credit, which is a partially refundable credit for tuition and related expenses; the health coverage tax credit, which provides a credit for health insurance costs of qualifying individuals who receive trade adjustment assistance (TAA) or pension benefits under a plan taken over by the Pension Benefit Guaranty Corporation (PBGC); the credit for tax withheld on wages; the credit for tax withheld at source for nonresident aliens and foreign corporations; the credit for fuel excise taxes paid on fuel used for nontaxable uses; and the credit for overpayment of tax.

Additionally, a premium assistance credit, provided under the Patient Protection and Affordable Care Act ( P.L. 111-148 ), will go into effect in 2014. There are also several refundable credits that have recently expired. These are the first-time homebuyer credit, the "recovery rebate" credit in the Economic Stimulus Act of 2008 (2008 stimulus credit), the Making Work Pay credit available in 2009 and 2010, and the adoption expenses credit, which was refundable for 2010 and 2011. Selected credits are summarized in Appendix A .

The credits listed in the last four bulleted points above are essentially methods by which taxpayers receive refunds for overpayment of taxes. The other refundable credits can be broadly categorized into those whose value depends on the taxpayer's earnings and those whose value is based on the taxpayer's expenditures for a particular action or good, such as higher education or homeownership. Currently, the two largest refundable tax credits—the EITC and ACTC—fall into the former category and comprise an estimated 95% of the total amount of refundable credits claimed in 2009. These credits effectively subsidize low-wage work, providing additional money for each dollar of wages. In addition, both credits help mitigate the federal taxes that low-income workers pay. In many cases, these workers may not have sufficient income to incur an income tax liability, but they do pay payroll taxes (i.e., the taxes on wages that fund Social Security benefits under the Old-Age, Survivors, and Disability Insurance (OASDI) program and the Medicare hospital insurance (HI) program). For extremely low-wage workers, these credits may result in a net increase in income.

For example, in 2011 (when the two-percentage point payroll tax reduction was in effect), taxpayers were directly subject to a payroll tax rate of 5.65%. If a taxpayer had $20,000 of earnings and one child, the taxpayer would owe $1,130 of payroll taxes and $410 of federal income taxes, for a total federal tax liability of $1,540, as illustrated in Figure 1 . This same taxpayer would be eligible for a $1,000 refund from the ACTC and a $2,565 refund from the EITC. Hence, in this example, the taxpayer would receive $2,025 as a refund. Figure 1 also highlights that while taxpayers begin paying payroll taxes on the first dollar they earn, the total amount of refundable credits they receive is greater than their total federal tax liability (net the non-refundable portion of the child tax credit) until taxpayers earn approximately $26,000. Hence, in this example, taxpayers making under approximately $26,000 actually see a net increase in their income as a result of these credits. For reference, in 2011 the poverty level for an adult under 65 with one child was $15,504.

Immigration Law: Unauthorized Aliens

The migration and family patterns of unauthorized aliens residing in the United States are central to the question of their ability to claim refundable tax credits. Through the Immigration and Nationality Act (INA), foreign nationals enter the United States in two main categories: as legal permanent residents (LPRs) and temporary nonimmigrants. Unauthorized resident aliens are foreign nationals who overstay their nonimmigrant visas, foreign nationals who enter the country surreptitiously, or foreign nationals who are admitted on the basis of fraudulent documents. In all three instances, these unauthorized aliens are in violation of the INA and subject to removal. The actual number of unauthorized aliens in the United States is not known, as locating and enumerating people who are residing in the United States without permission poses many methodological problems. Estimates derived from the March Supplement of the U.S. Census Bureau's Current Population Survey (CPS) indicate that the unauthorized resident alien population was 11.2 million in 2010.

The Pew Hispanic Center reported that 35% of unauthorized adults have resided in the United States for 15 years or more and that 28% have resided for 10 to 14 years. The report also found that the proportion of unauthorized aliens who have been in the country at least 15 years has more than doubled since 2000. Pew researchers have also found that unauthorized aliens tend to be younger than the U.S. population overall and more likely to be in the child-bearing and child-rearing years. As a consequence, nearly half—an estimated 46%—of unauthorized adults are parents of minor children.

"Mixed" Immigration Status Households

A significant portion of the households headed by unauthorized aliens may have U.S. citizen children, as well as spouses who may be legal permanent residents (LPRs). Researchers at the Pew Hispanic Center estimated that at least 9 million people were in "mixed-status" families that included at least one unauthorized adult alien and at least one U.S.-born child in 2010. Along with the approximately 1 million unauthorized aliens who are minor children, Pew researchers estimated that 4.5 million minor children were born in the United States to a family in which at least one parent was an unauthorized alien. As Figure 2 shows, the number of U.S.-citizen children with at least one unauthorized parent has more than doubled since 2000.

The implications of these demographics for the refundable tax credits heighten the complexity of the debate to restrict such tax credits to those persons legally authorized to work in the United States. In a widely cited 2002 study of federal benefits that may have gone to households headed by unauthorized aliens, Steven Camarota concluded, "[M]any of the costs associated with illegals are due to their American-born children, who are awarded U.S. citizenship at birth ... greater efforts at barring illegals from federal programs will not reduce costs because their citizen children can continue to access them." Whether an unauthorized alien who is head of household is permitted to be the payee of a federal benefit for U.S. citizen children varies across programs.

Another group of foreign nationals that adds a level of complexity are the "quasi-legal" migrants. More precisely, not all unauthorized aliens lack legal documents giving them permission to work in the United States, which leads many observers to characterize these documented aliens as "quasi-legal" migrants. There are certain circumstances in which the Department of Homeland Security issues temporary employment authorization documents (EADs) to aliens who are not otherwise considered authorized to reside in the United States. Foreign nationals with EADs, in turn, may legally obtain Social Security cards. These "quasi-legal" unauthorized aliens fall in several categories:

The government has given them temporary humanitarian relief from removal, such as Temporary Protected Status (TPS). They have sought asylum in the United States and their cases have been pending for at least 180 days. They are immediate family or fiancées of legal permanent residents (LPRs) who are awaiting in the United States for their legal permanent residency cases to be processed. They have overstayed their nonimmigrant visas and have petitions pending to adjust status as employment-based LPRs.

None of the aliens described above have been formally approved to remain in the United States permanently, and are not necessarily considered lawfully present. Many with pending cases who are ultimately denied LPR status may have legally obtained SSNs for the temporary periods they were permitted to work in the United States. In addition, some may also be part of mixed-status families who include persons with ITINs.

Federal Tax Status of Unauthorized Aliens

The Internal Revenue Code (IRC) does not have a special classification for individuals who are not lawfully present in the United States. An unauthorized alien is, like all other foreign nationals, classified for tax purposes as a resident or nonresident alien. Resident and nonresident aliens are both subject to U.S. taxes—resident aliens are generally taxed in the same manner as U.S. citizens, while nonresident aliens are subject to special rules.

In general, an individual is a nonresident alien unless he or she is a lawful permanent resident or is present in the United States for a sufficient number of days during the current and previous two years ("substantial presence test"). Thus, an unauthorized alien who has been in the United States long enough to meet the substantial presence test is classified as a resident alien; otherwise, he or she is generally classified as a nonresident alien. This classification is for tax purposes only and does not affect the individual's immigration status. For further information on classes of noncitizens eligible to work and possibly qualify as a resident alien, see Appendix B and Appendix C .

Taxpayer Identification Numbers and Social Security Numbers

Since aliens, including unauthorized aliens, are subject to federal taxes, they need a taxpayer identification number. A taxpayer identification number is a unique number that identifies an individual for tax administration purposes. For most individuals, their taxpayer identification number is their Social Security number (SSN). Under current law, SSNs may be issued to lawful permanent residents, aliens who are authorized to work in the United States, and other aliens who are required by federal or state law to have an SSN in order to receive certain public benefits. In FY2011, the Social Security Administration (SSA) issued 5.4 million new SSNs. Of those, 1.3 million were issued to noncitizens allowed to work in the United States and 28,622 were issued to legally present aliens who were not authorized to work.

Prior to 1996, unauthorized aliens generally obtained SSNs for nonwork (tax administration) purposes from the SSA or were assigned temporary taxpayer identification numbers by the IRS. In 1996, due to inefficiencies with the temporary numbers and plans by the SSA to tighten the rules under which aliens could obtain nonwork SSNs, the IRS began issuing permanent individual taxpayer identification numbers (ITINs) to alien taxpayers who are not legally able to obtain SSNs. Thus, individuals who are ineligible for SSNs are supposed to file their federal tax returns using ITINs as their identifying numbers. For a discussion of trend data on SSNs issued to noncitizens, see Appendix D .

As Figure 3 shows, the number of taxpayers filing with ITINs has increased over the past decade. A 2009 TIGTA audit reported, "(T)here has been a significant increase in the use of ITINs since the IRS began issuing them in Tax Year 1996." This audit specifically found a 246% increase from 530,000 in 2001 to more than 1.8 million in 2007. The 2011 TIGTA audit reported further increases in tax returns filed with ITINs. The initial rise in ITIN filings coincides with provisions in the various comprehensive immigration reform bills of the 2000s that would have required unauthorized aliens to demonstrate that they had paid taxes if they sought earned legalization or "amnesty."

As Figure 3 shows, the 2011 audit captured a larger number of ITIN filers for 2007 than the 2009 audit did for 2007. The TIGTA offered this explanation that may account, in part, for the difference:

Another reason for the increase is that a significant number of individuals are filing multiple claims to obtain the ACTC [Additional Child Tax Credit] for prior year tax returns (e.g., filing Tax Years 2007, 2008, and 2009 returns at the same time). In Processing Year 2010, approximately 238,000 ITIN filers submitted more than 608,000 tax returns for multiple years at the same time and claimed just more than a billion dollars in ACTCs on those returns. The ACTC claims for these individuals for the combined tax periods can be substantial. However, not all of these claims were refunded because of the statute of limitations rules that apply.

These figures may not capture all tax payments by unauthorized aliens. Notably, unauthorized aliens who entered the country legally and had work authorization but who overstayed the terms of their admittance may have a valid SSN that was assigned to them. In addition, the Social Security Actuary estimates that 75% of unauthorized aliens who are working are paying the Federal Insurance Contributions Act (FICA) tax, and thus are using—either their own, someone else's, or a fraudulent—SSN. As a result, some unauthorized aliens appear to be paying federal income taxes using an SSN rather than an ITIN.

Eligibility of Unauthorized Aliens to Claim Refundable Credits

In determining whether unauthorized aliens may claim the refundable tax credits, two questions arise. The first is whether these individuals are able to claim the credits under the federal tax laws found in the Internal Revenue Code (IRC). The second is whether any refundable tax credits are "Federal public benefits" under Section 401 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). If so, it could then be argued that the credit should be disallowed to any unauthorized alien even if the IRC does not contain any restriction.

Eligibility Under the Internal Revenue Code

As illustrated in Table 1 , there are two ways in which the Internal Revenue Code restricts the eligibility of aliens to claim certain refundable tax credits. First, for some credits, Congress has expressly provided in the applicable IRC statute that nonresident aliens are prohibited from claiming that particular credit.

Second, Congress has included express statutory requirements in the IRC that taxpayers provide their SSNs when claiming certain credits. For these credits, any alien—whether resident or nonresident—without an SSN would be ineligible to claim the credit. As shown in Table 1 , only the EITC currently requires that taxpayers provide their SSNs, along with those of their spouses (if filing a joint return), and any qualifying children. The SSNs must have been issued for work purposes. The 2008 stimulus credit and the Making Work Pay credit, both of which have now expired, contained a similar requirement, although they did not specify that the SSN be issued for work purposes.

As discussed above, individuals who enter the United States illegally may not lawfully obtain SSNs, and therefore they would not be able to claim a credit with an SSN requirement. However, some resident aliens who are currently in the country without proper immigration documents were once lawfully admitted, but have overstayed their visas. These individuals may have lawfully received SSNs while they were authorized to be in the country, and could attempt to use the SSN to claim a credit. The statutes for the EITC, 2008 stimulus credit, and Making Work Pay credit do not make explicit reference to the SSN's current validity, although it appears Congress intended to restrict the credits to taxpayers with valid SSNs. Regardless, at this point in time, the IRS does not determine an individual's immigration status or whether a taxpayer with a facially valid SSN has overstayed his or her visa.

Eligibility Under the Personal Responsibility and Work Opportunity Reconciliation Act

The extent to which residents of the United States who are not U.S. citizens should be eligible for federally funded public aid has been a contentious issue since the 1990s. Title IV of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 ( P.L. 104-193 ) established comprehensive restrictions on the eligibility of all noncitizens for means-tested public assistance, with exceptions for legal permanent residents (LPRs) with a substantial U.S. work history or military connection.

The 1996 welfare law divided noncitizens into two general categories for purposes of benefit eligibility. The least restrictive category is that of qualified aliens , legal permanent residents, refugees, aliens paroled into the United States for at least one year, and aliens granted asylum or related relief. The 1996 immigration law added certain abused spouses and children as another class, and P.L. 105-33 added Cuban-Haitian entrants. The other, more restrictive, category is that of non-qualified aliens . It consists of other noncitizens, including unauthorized aliens, nonimmigrants (i.e., aliens admitted for a temporary purpose, such as education or employment), short-term parolees, asylum applicants, and various classes of aliens granted temporary permission to remain. Regarding unauthorized aliens in particular, Section 401 of PRWORA barred them from any federal public benefit except the emergency services and programs expressly listed in Section 401(b).

This overarching bar to unauthorized aliens hinges on how broadly the phrase "federal public benefit" is construed. The law defines this phrase to be

(A) any grant, contract, loan, professional license, or commercial license provided by an agency of the United States or by appropriated funds of the United States; and (B) any retirement, welfare, health, disability, public or assisted housing, postsecondary education, food assistance, unemployment benefit, or any other similar benefit for which payments or assistance are provided to an individual, household, or family eligibility unit by an agency of the United States or by appropriated funds of the United States.

So defined, this bar covers many programs whose enabling statutes do not individually make citizenship or immigration status a criterion for participation. Thus, unauthorized aliens are statutorily barred from receiving benefits that previously were not individually restricted—Social Services Block Grants and migrant health center services, for example—unless they fall within the 1996 welfare act's limited exceptions.

PRWORA also amended the IRC to impose an SSN requirement for claiming the EITC. The provision is aimed at preventing unauthorized aliens from claiming the credit by requiring EITC recipients (and spouses) to file their taxes with SSNs that are valid for employment in the United States.

Are Refundable Tax Credits "Federal Public Benefits" for Purposes of PRWORA Section 401?

The question has been raised whether any of the refundable tax credits are federal public benefits under PRWORA Section 401. If so, then the argument could be made that unauthorized aliens should be ineligible to receive them, regardless of whether the Internal Revenue Code restricts their eligibility.

There is no indication that the IRS considers any refundable tax credits to be subject to PRWORA Section 401. It does not appear the agency has issued any regulations, rulings, or other guidance on this issue. If the IRS were to permit unauthorized aliens to claim any refundable credit that does not include a statutory SSN requirement, as appears to be the case currently, then there is a serious question as to whether that position could be challenged in court. Judicial review of such interpretation would be possible only if challenged by a person with sufficient standing. So long as no taxpayer is denied a credit, it seems unlikely anyone would have standing to sue since it appears doubtful that anyone would be personally injured (a necessary prerequisite for standing) by the IRS's decision to allow the credit. Further, taxpayers generally do not have standing to bring suit by alleging that they, as taxpayers, were harmed by the government's payment of funds from the public fisc in violation of law. Therefore, if the IRS does not interpret Section 401 to apply to refundable tax credits, it is unlikely that this interpretation could be challenged in court.

If, however, the IRS were to deny a refundable tax credit to an unauthorized alien due to PRWORA Section 401, then that individual would theoretically have standing to challenge the denial in court. Assuming an unauthorized alien were willing to challenge the denial, a key question would likely be whether the IRS took such a position through a regulation promulgated through notice-and-comment rulemaking or by some other method (e.g., through issuance of a revenue ruling or internal agency memorandum). This is important because courts grant varying levels of deference to agency interpretations of statutes when examining questions such as whether an agency's rulemaking is in excess of its delegated statutory authority or whether the agency interpreted a statute correctly when promulgating a rule. When a statute is open to differing interpretations, as some may argue is the case with PRWORA Section 401 (as discussed below), the level of deference given to the agency's interpretation often plays a pivotal role in determining whether a reviewing court upholds it.

The highest level of deference that a court may afford to an agency interpretation is known as Chevron deference, after the case in which the Supreme Court first articulated the standard. It applies when an agency's interpretation is the product of a formal agency process, such as notice-and-comment rulemaking, through which Congress has authorized the agency "to speak with the force of law." A court conducting a Chevron analysis first looks at whether Congress has "directly spoken to the precise question at issue." If the court determines that Congress has done so, then that is the end of the matter because the "law must be given effect." But if the statute does not directly address the issue, then "the court does not simply impose its own construction of the statute," but rather determines whether the agency interpretation is a permissible construction of the statute. If so, the court will generally defer to the agency's position, regardless of whether "it is the only possible interpretation or even the one a court might think best."

A court would likely give a lower level of deference to an IRS interpretation of PRWORA's applicability to refundable tax credits if done through some other means, such as issuance of a revenue ruling or other guidance. Courts generally give a lower level of deference to less formal agency interpretations, largely because they are typically not subject to a notice-and-comment period. The level of deference given agency interpretations such as revenue rulings varies, depending on such things as "the degree of the agency's care, its consistency, formality, and relative expertness, and … the persuasiveness of [its] position." Looking at these factors, revenue rulings, which are official interpretations of the tax law by the IRS, are generally provided some deference. However, a court that found a ruling's reasoning unpersuasive would not be bound by it. An IRS position expressed in other types of documents might receive even less deference.

Legal Analysis

A court faced with the issue of whether refundable tax credits are federal public benefits under PRWORA Section 401 would likely begin by examining the statutory language at issue. The Supreme Court often recites the "plain meaning rule," that, if the language of the statute is clear, there is no need to look outside the statute to its legislative history in order to ascertain the statute's meaning. Generally, statutory text is the ending point as well as the starting point for interpretation.

Looking at the statutory language of Section 401, the definition of "federal public benefit" lists several types of payments or benefits (e.g., grants, contracts, and loans), but does not expressly include any refundable tax credits or other tax benefits. Thus, the question here seems to be whether refundable tax credits are included in any of the items expressly listed—specifically, whether they would be considered to be a "grant" provided by a federal agency under Section 401(c)(1)(A) or a "benefit" that is "provided to an individual, household, or family eligibility unit" by a federal agency under Section 401(c)(1)(B).

When the meaning of specific statutory language is at issue, courts often need to consider the meaning of particular words or phrases. If the word or phrase is defined in the statute or elsewhere in the U.S. Code, then that definition governs if applicable in the context used. If not, courts typically look to see if the term has an accepted meaning in the area of law addressed by the statute, was borrowed from another statute where it had an accepted meaning, or had an accepted and specialized meaning at common law. In each of these situations, the accepted meaning governs and the word or phrase is considered a technical term or "term of art." Here, there appears to be no statutory definition applicable to the law's use of "grant" described in Section 401(c)(1)(A) or "benefit" described in Section 401(c)(1)(B). None of the key terms are defined in PRWORA, and they do not appear to be terms of art. Furthermore, while language similar to Section 401 is found in several other statutes, it does not appear any court has examined whether those statutes apply to refundable tax credits.

Under the principles of statutory interpretation, words and phrases that are not terms of art or defined by statute are customarily given their ordinary meanings, often derived from the dictionary. Assuming that a court does not find "grant" or "benefit" to be terms of art, the court may be inclined to give them their ordinary and customary definitions. The Oxford Dictionaries, for example, define the term "grant" as "a sum of money given by an organization, especially a government, for a particular purpose." The language used in Section 401(c)(1)(B) is similarly defined (e.g., the Oxford Dictionaries define "benefit" as "a payment made by the state or an insurance scheme to someone entitled to receive it" and "assistance" as "the provision of money, resources, or information to help someone").

Looking at these definitions, it seems likely a court would find that at least some of the refundable tax credits would not be treated as federal public benefits. To the extent that the definitions of the key terms in PRWORA Section 401 evoke the concept of the government providing some type of assistance, it seems unlikely they would be interpreted to include the refundable credits in IRC Sections 31, 33, 34, and 37. This is because the taxpayers claiming these credits have essentially paid more tax than required, and the credits are merely the means by which the government gives the taxpayer his or her money back. Thus, they seem fundamentally different from the types of payments or benefits listed in Section 401, and it seems unlikely they would be treated as "grants" or "benefits." Furthermore, the government's refusal to pay over the refunds might be challenged as a violation of the Fifth Amendment of the U.S. Constitution, which could also influence a court's reading of Section 401 since courts generally try to interpret statutes to avoid constitutional issues.

For the other refundable tax credits, it might be argued that their refundable nature could justify their falling within the plain language meaning of "grant" or "benefit." In such case, it seems that a court, having concluded that a refundable credit is a "grant" under Section 401(c)(1)(A), could then determine that the provision's other criteria are met (i.e., that the payment was "provided by" a federal agency since it came from the Treasury Department). Similarly, a court concluding that a refundable credit is a "benefit" under Section 401(c)(1)(B) might find that the provision's other criteria are met, including that it be "provided to an individual, household, or family eligibility unit by" a federal agency. Furthermore, it seems possible that a court could find that at least some refundable credits could be classified as a type of listed benefit (e.g., welfare, health, or postsecondary education). A court might find support for such a conclusion in case law where courts have looked at whether refundable tax credits are welfare-type benefits for purposes of other laws. For example, some courts have found the EITC to be public assistance for purposes of state law because of its refundable nature and purpose of assisting low-income families. However, other courts have held that the child tax credit is not such a benefit since, unlike the EITC, it is not limited to assisting low-income families. As these cases illustrate, a court might not reach the same conclusion with respect to each credit, finding that some would meet the criteria while others would not.

On the other hand, it is possible a court could determine that no refundable tax credits are federal public benefits under Section 401 based on the fact that the provision does not explicitly include refundable tax credits, and, as discussed below, there is no clear evidence in the legislative history that Congress intended such credits to be treated as federal public benefits. This could lead a court to conclude that Congress did not include them in the list of named federal public benefits because it understood them to be excluded (i.e., that the express inclusion of specific types of benefits or payments on the list means Congress intended to exclude anything not listed). Furthermore, one could argue that refundable tax credits are not federal public benefits because tax benefits are not traditionally thought of as the types of "grants" or qualifying "benefits" referred to in Section 401. Additional support for the argument that the credits are not federal public benefits could be found in PRWORA Section 432(a), which directs the Attorney General to consult with the Secretary of Health and Human Services when promulgating regulations for verifying the immigration status of applicants for federal benefits. Because the section does not require consultation with the Treasury Department, it could be evidence that Congress did not intend any tax provisions to be considered federal public benefits. Finally, additional support might be found in other congressional action, specifically the fact that Congress included in PRWORA an SSN requirement for the ETIC and subsequently enacted legislation to impose an SSN requirement for the 2008 stimulus credit and Making Work Pay credit. It might be argued that these actions would be unnecessary had Congress believed that the PRWORA Section 401 applied to refundable tax credits. To the extent that a court reaches the conclusion that any refundable tax credits are not federal public benefits under PRWORA Section 401, then it would appear that unauthorized aliens would be able to claim such credits absent a provision in the Internal Revenue Code explicitly requiring an SSN or disallowing the credit to those individuals (e.g., the IRC expressly disallows some credits to nonresident aliens).

Legislative History

In light of the statutory silence, it is possible, although not guaranteed, that a court might look to the provision's legislative history for evidence of congressional intent. PRWORA's legislative history does not clarify whether refundable credits are federal public benefits. The report language describing the law as it existed prior to PRWORA refers to one refundable credit—the EITC:

Current law limits alien eligibility for most major Federal assistance programs, including restrictions on, among other programs, Supplemental Security Income, Aid to Families with Dependent Children, housing assistance, and Food Stamps programs. Current law is silent on alienage under, among other programs, school lunch and nutrition, the Special Supplemental Food Program for Women, Infants, and Children (WIC), Head Start, migrant health centers, and the earned income credit [emphasis added].

This statement shows that Congress was aware of the EITC's existence, but does not offer solid evidence of congressional intent to treat it as a federal public benefit, particularly since the statute has been interpreted not to include some of the other programs listed (e.g., Head Start) as benefits under Section 401. It does not appear that there are any other references to the EITC in the legislative history of Section 401.

Section 451 of PRWORA intends to disallow the credit to unauthorized resident aliens by amending the IRC to require that EITC claimants provide the SSNs of themselves, their spouse (if filing a joint return), and qualifying children. Thus, Section 451 explicitly addresses the issue seemingly raised by the above report language concerning the eligibility of unauthorized aliens to claim the EITC. This is arguably not responsive to the question of whether the EITC is a federal public benefit under Section 401. On the one hand, it may be unclear why Congress would have felt the need to include Section 451 if Section 401 had already precluded receipt of the EITC by unauthorized aliens. On the other hand, it is possible to interpret Section 451 as an enforcement mechanism—that is, Congress intended for Section 401 to cover the EITC and enacted Section 451 as a way to prevent unauthorized aliens from claiming the credit. The legislative history is silent on this matter.

In light of the legislative history's silence, it is uncertain the extent to which a court would find the history to be useful in addressing the issue at hand. This might be especially true in light of the modern view of statutory interpretation that focuses on the language of the statute itself, which would appear to marginalize whatever insight legislative history or other extrinsic aids might provide. Thus, a court might be hesitant to place any significance on the statute's minimal and ambiguous legislative history, particularly since it does not clearly evidence congressional intent one way or the other.

Summary of Legal Analysis

In conclusion, until the IRS or a court addresses this issue, it is not possible to say whether any refundable tax credits are federal public benefits under PRWORA Section 401. Thus, at this time, the only clear restriction on the ability of unauthorized resident aliens to claim any refundable credits is the one provided in the IRC for the EITC since it includes a SSN requirement (the now-expired Making Work Pay and 2008 stimulus credits contained a similar requirement). Unauthorized nonresident aliens, meanwhile, are also expressly prohibited in the IRC from claiming those three credits, as well as several others (e.g., the American opportunity tax credit).

Selected Policy Options

If there are concerns with the implementation of current law, there are a variety of policy options that could address them. These options could range from clarifying that unauthorized aliens are permitted to claim refundable tax credits to enacting a categorical bar preventing unauthorized aliens from obtaining refundable tax credits. Potential policy options include the following:

Amending the IRC to require SSNs of all filers claiming refundable tax credits. A related option would be to amend the IRC to require SSNs of all filers claiming tax credits, not just those that are refundable. This may be particularly relevant to tax credits, like the child tax credit and the American Opportunity Tax Credit, that have both refundable and non-refundable components. In either case, the scope of the SSN requirement (i.e., who would be required to provide the SSN—the taxpayer, the spouse if married filing jointly, and/or the qualifying dependents, if applicable) could impact the ability of some families—especially mixed status families where certain members have SSNs and others do not—to claim the credits. Amending the IRC to absolutely bar unauthorized aliens from claiming refundable credits (similar to the existing IRC provisions that deny eligibility for certain refundable tax credits to nonresident aliens). Amending the IRC to enable mixed immigration status families to obtain a partial amount of refundable tax credits for those members of the filing household who are legally authorized to reside and work in the United States. For example, the value of the credit could be prorated for the proportion of taxpayers who meet the specified criteria (e.g., if three of the four individuals claimed on a tax return have SSNs, the taxpayers would be eligible for 75% of the total value of the credit). Amending Section 401 of PRWORA to clarify that refundable tax credits are not "federal public benefits" and therefore the only bar to unauthorized aliens claiming such credits would be those found in the IRC. Amending Section 401 of PRWORA to expressly include refundable tax credits among the listed "federal public benefits" so that unauthorized aliens would be ineligible to claim the credits even if the IRC were silent on the matter. Authorizing and appropriating funds to the IRS and DHS to facilitate the cross-checking of data on immigration status and tax returns to identify unauthorized aliens claiming credits for which they may not be eligible.

When considering these policy options, it should be noted that the existing refundable tax credits are not monolithic and serve different purposes. There may be policy or other reasons to distinguish among them with respect to the eligibility of unauthorized aliens to claim them. In particular, the refundable credits which are effectively refunds of overpayment of taxes would probably have to be treated differently than the others since denying them could raise constitutional concerns.

Appendix A. Overview of Selected Refundable Tax Credits

Appendix B. Classes of Noncitizens and Their Eligibility to Obtain Social Security Numbers and to Qualify as a Resident Alien

Appendix C. Selected Categories of Nonimmigrants Who Are Permitted to Work

There are categories of foreign nationals who are not LPRs but who may be working and residing in the United States for periods of time sufficient to qualify under the Internal Revenue Code's "substantial presence" test (and thus are classified for tax purposes as resident aliens , unless there are specific treaty agreements between the United States and their country of citizenship).

The classes of nonimmigrants who are expressly permitted to work in the United States include the following:

E treaty traders and investors; H temporary workers; NAFTA temporary workers; Certain F foreign students who have obtained permission; J and Q cultural exchange visitors; L intracompany transfers; K fiancés of U.S. citizens; O and P extraordinary athletes, entertainers, and performers; R religious workers; T trafficking victims; U crime victims; and V family members waiting for more than three years.

Spouses and minor children of the qualifying nonimmigrant may accompany the alien on a related visa, but in most instances are not given permission to work.

Appendix D. Social Security Numbers (SSNs) Issued to Noncitizens

As Figure D -1 shows, in FY2011 there were 1.3 million original SSNs issued to noncitizens. The total number of original SSNs issued to noncitizens peaked at 1.8 million in FY1996. In the previous decade, the number of SSNs issued to noncitizens ranged from a peak of 1.5 million in FY2001 to a low of slightly less than 1.2 million in FY2005.

Over time, there has been a substantial change in composition of the noncitizen population receiving SSNs. For example, in FY1992, SSA issued SSNs to 200,136 aliens who had permanent work authorization (e.g., LPRs) comprising 12% of the total number of SSNs issued to noncitizens. In FY2011, there were 619,577 aliens with permanent work authorization who received SSNs, which accounted for 49% of all SSNs issued to noncitizens. In addition, as discussed previously, in FY1996 and FY2001, SSA tightened the rules under which aliens could obtain nonwork SSNs. Corresponding with these changes, large declines in the number of nonwork SSNs issued can be seen between FY1996 and FY1997 (325,629 to 141,472), and between FY2001 and FY2002 (72,224 to 25,169). In FY2011, SSA issued 28,622 nonwork SSNs.