The House Reconciliation Bill’s Tax Provisions Will Increase Poverty and Penalize Immigrants 

The founders of the United States decried an unequal tax system, angry that Great Britain was using its colonies as a piggy bank. But the “One Big Beautiful” reconciliation legislation recently passed by the House of Representatives would create a different and harsher tax code for many immigrant tax filers and their U.S. citizen family members. While the U.S. tax code currently applies to citizens and immigrants in largely the same way, this proposed legislation marks a sharp break from current practice. Instead, the tax code would be transformed into a system where, especially combined with proposed eligibility changes, immigrants subsidize trillions of dollars in tax breaks for wealthy citizens.  

Background

Everyone who earns income, whether they are citizens or immigrants, work-authorized or not, must pay taxes or face criminal penalties. Undocumented immigrants pay nearly $100 billion in taxes each year, part of the over $650 billion paid by all immigrants. Immigrants pay taxes not only because they must, but also because it may be helpful in future applications for citizenship and because many are patriotic and care deeply for their adopted homeland.  

Immigrants who are not work-authorized, which may include undocumented immigrants, student visa holders, trafficking survivors, and others, may not have a Social Security number (SSN) for filing their taxes. Instead, they use an Individual Taxpayer Identification Number (ITIN) to file. Regardless of whether they are work-authorized, immigrants with income must file taxes under the law. 

For the most part, the same rules apply to tax payments made by immigrants and U.S. citizens. All tax filers can utilize exemptions and deductions to reduce their taxable income and receive credits to reduce their tax liability. Only a small number of these rules consider immigration status in some way. Since 1997, undocumented immigrants and members of their tax household have been ineligible for the federal Earned Income Tax Credit (EITC), which provides support to lower- and moderate-income working families. Since 2017, to receive the Child Tax Credit (CTC), eligible children must have an SSN. These policies exclude 3.7 million immigrants from the CTC and EITC’s important anti-poverty impacts.  

Major Tax Provisions Affecting Immigrants in the House-Passed Reconciliation Bill

The reconciliation bill passed by the House would significantly increase the number of tax policies where immigration status is considered in determining a filer’s eligibility, fundamentally undermining the basic fairness of the tax system. These provisions, contained in a bill that benefits corporations and billionaires significantly, would increase taxes on many immigrant families and contribute to increased childhood poverty.  

Exclusion of Children with an Immigrant Parent From the CTC 

The current law requiring a child to have an SSN to be eligible for the CTC, which excludes an estimated 1 million children, was created under the last Trump administration’s tax bill in 2017. Along with other tax provisions, it is set to expire in 2026. The House bill would make this exclusion permanent. 

The House bill would impose additional restrictions by eliminating CTC eligibility for any child whose parent lacks an SSN. This change exclusively affects children who are U.S. citizens or are lawfully residing in the U.S. Over 4.5 million children who are U.S. citizens or lawful permanent residents could be thrust into poverty under this proposal because of their parents’ immigration status. This policy would harm not only children with an undocumented parent but also children whose parent lacks work authorization.  

For example, if two college students have a child and get married, their baby could be denied this benefit of the tax system even if one parent is a U.S. citizen but the other is an international student with a valid visa. But the proposed policy also harms children and families by penalizing parents who get married. Married couples are generally required to file their taxes jointly, but, under this policy, if one parent lacks an SSN, the family cannot claim the CTC for their child. So, under this policy, the incentive for this family to provide for a child financially is for the couple to remain unmarried.   

Denying the CTC to these children will increase child poverty, with families losing up to $2,500 per child. Affected children will experience worse health, increased hunger and lower future earnings. These effects will ripple out to their communities, schools, and local economies.  

New Restrictions on Tax Exemptions, Deductions and Credits 

The House-passed bill links immigration status to basic tax provisions outside of the CTC and EITC for the first time. Eligibility for certain exemptions and deductions used to measure taxable income would depend on a filer’s immigration status. Unlike the CTC and EITC, these are not credits that directly increase the size of a family’s tax return but instead are used to lower their taxable income. 

 Immigrants without an SSN would be ineligible for: 

• The new tax exemptions for tips and overtime pay, despite their representation in the service industry. 

• A new $4,000 deduction for older Americans who file the standard deduction. 

• An exclusion for student loans discharged at death. 

Additionally, these education tax credits would be newly conditioned on having an SSN: 

• The American Opportunity Tax Credit, which offsets the costs of an undergraduate college degree. 

• The Lifetime Learning Credit, which offsets the costs of many forms of higher education. 

Access to a new type of tax-deferred savings account called “Trump accounts” would also be limited to U.S. citizen children by birth with at least one parent who has an SSN and current work authorization. Additionally, as discussed in our companion commentary, many lawfully present immigrants would be excluded from the Affordable Care Act’s tax credits to reduce the cost of health insurance. 

Excise Tax on Remittances 

The House bill also proposes a 3.5% excise tax on money sent to people in other countries, often known as remittances. This tax generally would be paid by the sender. However, U.S. citizens and nationals would be exempt from this tax. This proposal targets immigrants working in the U.S. to support family in their countries of birth – relatives who would face starvation or other hardships without their help. Financial service providers that facilitate these payments have called it convoluted and burdensome. 

Financial services companies would be required to collect personal information from people sending payments, and information on every remittance would be collected by the Treasury Department, creating serious privacy concerns for immigrants. Many could resort to less secure methods of sending money, benefiting entities with bad intentions while placing families at risk of losing their earnings to shady financial dealers.  

Conclusion

This bill increases taxes on millions of lower income immigrants and their U.S. citizen children while expanding tax breaks for the wealthiest people in the U.S. It represents a fundamental change in the tax code, creating a tiered system where immigrants are treated more harshly and expected to pay more into a federal system that largely excludes them from federal assistance programs. It comes at a time when immigrants already fear that the Trump administration is abusing privacy laws by using their tax filing data to fuel mass deportations, leading to less tax compliance and lower revenue overall for the government. Congress must reject this deeply unfair bill that undermines core principles of tax policy and our nation’s values.