The report of the conference committee on the big tax-cut bill expected to pass Congress includes a step forward in the field of not paying illegal aliens federal dollars to stay in the United States.
But additional steps are needed.
The issue is the billions in Additional Child Tax Credits paid to illegal alien parents who file income tax returns.
Currently, an illegal alien, even with a shaky Social Security number or an ITIN (individual tax identification number), may claim the up-to-$1,000-a-head payments even though the kids only have ITINs, which are not proof of legal residence, as SSNs are.
Under the conference committee report, unlikely to be amended at this point, the children must have valid SSNs, but the adult ACTC claimant does not need one.
The new system applies to tax returns filed in 2019, and once in place it is estimated that the savings will be around $3.9 billion a year. It will have no impact on returns filed this coming spring.
As my colleague Jan Ting (who teaches tax law at Temple Law School ) has written, the IRS could have stopped these payments years ago, but for eight years under Obama, and nearly one under Trump, the tax agency has persisted in paying these refunds even to families using the ITIN, not the SSN, to identify children. (The ITIN, an IRS creation, is issued for tax purposes to those who do not qualify for an SSN).
The ACTC relates to an additional credit, not an additional child. It is paid, under many circumstances, to families who have no tax obligation at all. It is called, for this reason, a refundable credit. It is a boon to low-income families. There is also a smaller nonrefundable tax credit for children, but that only applies to families actually paying taxes.
Congress, assuming the tax cut bill passes, is about to make a change in the ACTC that IRS could have done administratively; Congress is to be commended for finally doing so legislatively. Thanks to Sen. Marco Rubio (R-Fla.), the maximum refundable credit is moving up from $1,000 per child to $1,100 per child next year, and to $1,400 some years from now.
What Congress Did NOT Do, and Should Have Done
The ACTC decision is one step forward, but two other SSN-and-taxes decisions were backward movements.
If you search for "child tax credit" in the full text of this long, long bill and the accompanying report, you will find, at footnote 74:
Additionally, a qualifying child who is ineligible to receive the child tax credit because that child did not have a Social Security number as the child's taxpayer identification number may nonetheless qualify for the nonrefundable $500 credit.
Now, $500 is less than $1,100, and it applies to a much smaller and better-off set of illegal alien families, those with an obligation to pay taxes, but the apparent inconsistency is remarkable.
There is a somewhat similar situation involving the American opportunity tax credit, which is a credit for college-level educational expenses. It has a maximum of $2,500 and is partially non-refundable and partially refundable (the tax law is always complex.) The House version of the tax bill called for this benefit to be awarded only to those with SSNs; the Senate had no such provision, and the conferees adopted the Senate position.
There are, of course, far fewer illegal aliens attending college and paying taxes than there are illegal alien families with children, so the conferees' failure to insist on the SSN in these two matters is small potatoes compared to the ACTC decision, but it, again, it seems to be inconsistent.
For a cynic, there is an answer to these seeming inconsistencies: The overall tax bill favors the rich over the poor. These three provisions regarding refundable child tax credits, nonrefundable child tax credits, and American opportunity tax credits, follow the same pattern. The illegal families lose a tax break (that they should never have had in the first place) while two more prosperous sets of illegal aliens (those that do pay taxes and those in college) get to retain benefits they do not deserve.
I doubt that it was planned this way, but it looks like the GOP Congress treats slightly more prosperous illegals better than it does less-advantaged ones.
What is needed, of course, is a law or an IRS ruling that says if a filer's SSN does not match with a legally obtained one, there will be no refunds. None.
Maybe next year.
Meanwhile, there is another problem. While changing the tax code in this area is helpful, it does not guarantee compliance. IRS has been starved for operating funds and it might well not do as vigorous job enforcing that new ACTC provisions as it should. Each kid's SSN should be checked with the records.
Given that the Trump administration is unfriendly to the IRS, maybe more funds for it are not in the cards, but how about the Border Patrol lending 25 to 50 agents to the IRS facilities in Texas that handle these refunds for a couple of months? The agents would get better working conditions for a few weeks, (i.e., indoor duties) and their publicized presence at the IRS facilities would discourage people from trying to beat the new reform.
But that's probably too rational to be considered!