For years, millions of immigrants living in the United States quietly paid taxes, even if they did not have legal work status. Many used an Individual Taxpayer Identification Number, known as an ITIN. It was created for people who do not have Social Security numbers but still want to file taxes and meet their legal obligations.
The arrangement helped both sides. Undocumented Immigrants built a record showing they worked, paid taxes and followed rules. That could sometimes help in future immigration cases. At the same time, the US government collected billions of dollars in revenue used for Social Security, Medicare, roads, schools and debt payments. But that balance is now being shaken.
IRS sharing data with ICE changed everything
In April 2025, the IRS and ICE signed a memorandum of understanding that broke decades of practice by allowing tax data (names, addresses, filing history) to be shared for people with final removal orders or under criminal investigation. Courts later stepped in and placed limits on it, but the message had already landed: for many immigrants, filing taxes now felt tied to the risk of deportation. ICE asked for data on more than 1.2 million taxpayers, and the IRS shared about 47,000 matched records before facing backlash.
Courts later stepped in and limited more data sharing. But by then, fear had already spread through immigrant communities. Many people began to feel that filing taxes could now put them at risk.
ICE agents made nearly 20,000 arrests across Washington DC, Maryland and Virginia from the start of President Donald Trump’s second administration last year through early March, according to federal data.
That was almost five times higher than arrests recorded in the final full year of President Joe Biden’s term. Deportations reached 442,000 in fiscal year 2025.
Experts say billions could be lost
Researchers at the Yale Budget Lab say the federal government could lose between $147 billion and $479 billion in tax revenue over the next 10 years. The lower estimate assumes smaller changes in behaviour. The higher estimate assumes more people leave formal jobs, stop filing taxes and avoid systems linked to the government. These losses would come from fewer ITIN filings, lower payroll tax collections and more wages being paid off the books.
Immigrants contribute far more than many realise
To understand how much is at stake, the latest detailed study from the Institute on Taxation and Economic Policy, based on 2022 figures and still widely used in 2025 and 2026 reports, found that undocumented immigrants paid a total of $96.7 billion in taxes that year alone. They also paid billions more into Social Security and Medicare through payroll deductions, even though most cannot claim those benefits.
The Cato Institute said in a February report that immigrants paid more in taxes than they received in benefits every year since 1994. Over 30 years, that created a total fiscal surplus of $14.5 trillion, the think tank said.
Child tax credit changes added another blow
Recent changes to the child tax credit have also reduced incentives to file. Earlier, only the child being claimed needed to be a US citizen. Now, at least one parent must have a Social Security number. That means many mixed-status immigrant families no longer qualify for the refunds they once received.
Experts say the biggest damage may be trust. Once people believe their personal tax data can be used against them, many may stay away from the system for years, even if future policies change.
If fewer workers file taxes, if more wages go unreported and if people pull back from the formal economy, the government collects less money for roads, schools, Medicare, Social Security and other public needs. The underground economy may grow quietly, but the official economy could lose billions.
A hidden support system for America’s retirement funds
One of the biggest overlooked effects of the IRS-ICE data-sharing policy may be the damage it could cause to Social Security and Medicare. For years, undocumented immigrants have quietly helped support both programs through payroll taxes taken from their wages. They pay into the system, but they are barred from claiming many of those benefits themselves.
That means billions of dollars go in, while little or nothing comes back out. Experts have long said this made undocumented workers an unseen but important support for America’s ageing retirement system.
According to figures from the Institute on Taxation and Economic Policy and the American Immigration Council, undocumented immigrants paid $26.2 billion into the Social Security Trust Fund in 2023 alone. They also contributed another $6.4 billion to Medicare. Earlier estimates also showed they paid $33.9 billion in social insurance taxes in 2022.
The IRS-ICE data-sharing agreement may now reverse that benefit. Experts say many immigrants are becoming afraid to file taxes or work in jobs where income is formally reported. Instead, some may move to cash-only work where no taxes are withheld and no payroll contributions are made.
Disclaimer: This article is for general informational purposes only and does not constitute legal, immigration, or tax advice. Immigration laws and government policies are subject to frequent change without notice. While we strive to provide accurate updates, readers are strongly advised to verify the latest requirements with the official embassy, consulate, or government portal of the respective country. Financial Express is not responsible for any decisions made based on this information. For personalized guidance, please consult a qualified immigration attorney or a certified professional advisor.