Tax Credits for Undocumented Immigrants

Undocumented immigrants are often excluded from government benefits, but there are a few tax credits that they may be eligible for. This blog post will discuss undocumented immigrants and taxes, the different tax credits undocumented aliens may be eligible for, as well as the requirements for claiming them.

What are tax credits?

A tax credit is a dollar-for-dollar reduction in the amount of taxes that you owe. For example, if you owe $1,000 in taxes and you qualify for a $500 tax credit, you will only owe $500 in taxes. Some tax credits are refundable, which means that you can get a refund even if the credit is more than you owe in taxes. 

What tax credits are undocumented aliens eligible for?

Undocumented immigrants may be eligible for the following tax credits:

Earned Income Tax Credit (EITC): ITIN holding taxpayers are NOT eligible for the Earned Income Tax Credit. There are some situations where an ITIN may be present on a return where EITC is claimed but typically this would be when the ITIN holding individual is claimed as a dependent and the allowable EITC is claimed by SSN holding taxpayers for other SSN holding dependents listed on the return, or for the taxpayers themselves if other conditions are met.

American Opportunity Tax Credit (AOTC): The AOTC is a refundable tax credit for qualified education expenses. To be eligible for the AOTC, you must have a valid ITIN. This credit not retroactive. ITIN holders may only claim this credit for the current tax filing year, and the claim must be on a timely filed return, including extensions. 

Child Tax Credit (CTC): The CTC is a refundable tax credit for families with children under the age of 17. To be eligible for the CTC, you must have a valid ITIN. However, your child must have a Social Security number to be claimed as a dependent. SSN holding dependents can be claimed for the Child Tax Credit on the same return where the Credit for Other Dependents (COD) can be claimed for dependents who have ITINs. The Credit for Other Dependents is limited to a nonrefundable $500 credit per qualifying dependent.

How do undocumented aliens claim tax credits?

To claim tax credits, undocumented immigrants must file a federal income tax return using their ITINs. ITINs can be obtained from the Internal Revenue Service (IRS) after a US 1040 is filed with appropriate ITIN application paperwork per individual needing to obtain an ITIN. The required documentation varies based on factors such as age, position on return, and tax purpose. 

If appointments are unavailable with the local IRS office, taxpayers can locate local Certifying Acceptance Agents who can assist them with the documentation requirements of this tax-filing application process. 

ITIN Renewal Tax Tip

If an ITIN is unused on a tax return for a period of 3 years (approximately), it will be automatically deactivated. In order to change this ITIN status back to valid, it will need to be renewed. If a taxpayer is attempting to claim credits on a tax return where the primary ITIN is expired, the taxpayer might consider filing an extension for the tax return and then proceed to obtain ITIN renewal and tax filing services. 

If you would like information on becoming a Certifying Acceptance Agent with the IRS, please visit: https://www.preparertraining.com/product/caa-forensic-training-course/