The mention of undocumented workers always generates an emotional reaction. However, the IRS has a pretty cool, straightforward attitude toward the subject. As far as the IRS is concerned, there are only two kinds of aliens: resident aliens and nonresident aliens.
Either way, if you earn income in the United States, you are expected to pay taxes on that income.
Let’s talk about how to file a tax return if you are working in the United States illegally—and what benefits you’re entitled to claim.
A person who has spent at least 31 days in this country this year and 183 days in the United States during the last three years is called “resident by substantial presence.” The IRS outlines the details and exclusions, visas and treaties in its substantial presence test.
If you have not lived here long enough to meet the substantial presence test, you should file Form 1040-NR (nonresident) as your first tax return. During your second year in the States, you may file a regular Form 1040.
Looking at the Form 1040-NR, notice the space for an “identifying number” instead of a Social Security number. Exploring the form further, you can claim the dependents you support and all the usual adjustments to income. When it comes to credits, you are entitled to the child tax credit—and the additional child tax credit. But you are not entitled to the earned income credit. Since you don’t live in the States (as a nonresident), you are not entitled to the homebuyer credit or the residential energy credit.
Once you’ve lived here long enough to be a “resident alien,” you can claim the homebuyer credit and the residential energy credit. But you cannot claim the earned income credit without a valid Social Security number.
No Social Security Number (SSN)
If you’re planning on staying here, get an ITIN (individual taxpayer identification number) by filing Form W-7. Since this form requires submitting original documents to the IRS to prove your identity, get the help of a certified acceptance agent (CAA). The CAA can review your original documents for authenticity and send copies to the IRS, instead of the originals. You can even find CAAs outside the United States! [Note: To find CAAs in your state, just scroll to the bottom of that IRS page.]
While an ITIN doesn’t give you the legal right to work in this country, it does make it possible to keep consistent track of your income. It can provide proof that you have filed all your tax returns—for when you do apply for your green card.
Using Someone Else’s SSN
If you worked under someone else’s SSN, file your tax return using your own ITIN. Include a copy of the W-2 and a statement explaining that the SSN is incorrect.
Be aware that the person whose SSN you’re using will be getting notices that he has not included the income on his tax return. You will be causing him problems. You may need to get a tax professional to help get this straightened out for both of you.
Incidentally, if this article doesn’t apply to you, it’s likely to apply to someone you know. Please, give them this article and help them file their tax returns properly.
Tax Schemes and Tax Turkeys: Stay Away from Too-Good-to-Be-True Tax Advice
Winner! Winner! Winner!: Tax Implications of Winning Lotteries and Game Show Prizes
New Tax Laws for 2011
Open-Enrollment and FSAs: A Bonanza of Tax Advantages