House Passes Bill Expanding Child Tax Credits, Leaves Loophole for Illegal Aliens

FAIR Take | February 2024

Last week, the House passed H.R. 7024, the Tax Relief for American Families and Workers Act, a bill which would expand child tax credits while continuing to allow illegal aliens to claim them. Passage followed contentious floor debate in the House focusing on both the child tax credit loopholes and the broader spending implications for the U.S. economy. In the end, the bill passed 357-70, with more Democrats than Republicans in support.

Throughout debate, House Republican leadership and Ways and Means Committee Republicans – who drafted the text – supported the bill. They argued that the bill closely follows language from a 2017 tax cuts bill signed by then-President Trump. The 2017 bill requires that dependent children being claimed for the child tax credit possess a work-authorized Social Security Number (SSN). That change was meant to prevent alien children without legal status from being used to claim the credit but left open a loophole for illegal alien parents to claim dependents with a valid SSN. According to the Internal Revenue Service (IRS), parents are not required to have a valid SSN to claim the credit and can instead use an Individual Taxpayer Identification Number (ITIN), which is available to all illegal aliens.

While the 2017 law was intended to limit illegal aliens from taking advantage of the credit, the language does not require that dependents being claimed are U.S. citizens or lawful permanent residents (LPRs).  The relevant statutory language, from 205(c)(2)(B)(i)(I) of the Social Security Act, notes that valid SSN numbers for the purposes of the credit include those issued “to aliens at the time of their lawful admission to the United States either for permanent residence or under other authority of law permitting them to engage in employment in the United States and to other aliens at such time as their status is so changed as to make it lawful for them to engage in such employment [emphasis added].”

The IRS tax guide for aliens likewise notes that eligible dependents include “resident aliens.” However resident aliens are not the same as LPRs, aka green card holders. The IRS defines resident aliens as having either a green card or passing the “substantial presence test.” The substantial presence test provides that you are resident alien for tax purposes if you are in the country for 31 days during the relevant tax year and, using a fractional formula, 183 days of the relevant tax year and the two preceding tax years.  Separately, the IRS explicitly notes that “even an undocumented individual who meets the Substantial Presence Test will be treated for tax purposes as a U.S. resident.” Similarly, 26 USC 152(b)(3), referenced in the 2017 bill, states in relevant part: “The term “dependent” does not include an individual who is not a citizen or national of the United States unless such individual is a resident of the United States…[emphasis added].”

Therefore, eligible dependents include U.S. citizens, LPRs, and “resident aliens” with a work-authorized SSN. And illegal aliens with an ITIN can claim any dependent under the age of 17 satisfying any of the three criteria.  As of mid-2023, there are estimated to be roughly 5.8 million U.S.-born children of illegal aliens in the country. In just the first three months of 2021, the IRS received over 150,000 applications for ITINs.

A work-authorized SSN is available to multiple categories of illegal aliens. In fact, in Fiscal Year (FY) 2019, the Social Security Administration (SSA) assigned more than 1.5 million SSNs to noncitizens. Illegal aliens eligible for work-authorized SSNs include humanitarian parolees, asylum applicants, Deferred Action for Childhood Arrivals (DACA) beneficiaries, Deferred Enforced Departure (DED) recipients, and Temporary Protected Status (TPS) recipients.

Millions of aliens fall into these categories.  There were 876,577 otherwise inadmissible aliens paroled into the country in just the first nine months of Fiscal Year (FY) 2023; there are currently more than 580,000 covered by DACA; and, as of the end of FY23, approximately 697,530 covered by TPS.

The child tax credit provisions prompted vigorous debate leading up to the bill’s passage in the House. Ways and Means Committee Chairman Jason Smith (R-Mo.) claimed that the bill provides “no special loopholes for illegal immigrants…In fact, the plan still requires a Social Security number for children which was added in the 2017 GOP tax reform.” House Freedom Caucus (HFC) members meanwhile pushed back against it, with HFC Chair Bob Good (R-Va.) saying, I’m not going to support tax credits, Child Tax Credits, going to illegals. I think that’s incentivizing this illegal invasion.”

The Biden Administration has refused to enforce our immigration laws and adopted sweeping open-borders policies, leading to unprecedented levels of illegal aliens flooding into the country. The Tax Relief for American Families and Workers Act places an even greater burden on American taxpayers by expanding tax benefits for illegal aliens. Congress should not expand tax credits without closing loopholes allowing illegal aliens to take advantage of them.