Barriers to Tax Credit Education and Take-Up Among Immigrant Communities

As Congress considers reforms to the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC), it is worth examining why some eligible individuals do not claim them. While many face hurdles navigating complex eligibility rules and the tax filing process, immigrants encounter additional barriers that can negatively impact income, educational, and health outcomes. This blog explores structural, social, and psychological barriers that immigrant workers and their families face in claiming these two tax credits.

Structural Barriers to Take-Up

Immigrant eligibility for public benefits—such as Medicaid, the Supplemental Nutrition Assistance Program (SNAP), and Social Security—has historically been complicated and contingent on the specific program and citizenship and/or residency status of the individual or family, which has changed several times recently. Although the tax filer does not need a Social Security Number (SSN) to claim the CTC, the 2017 Tax Cuts and Jobs Act (TCJA) limited CTC eligibility to dependents with SSNs, eliminating access for around one million children previously eligible to be claimed. The EITC is also inaccessible to filers without an SSN, which restricts access for over five million Individual Taxpayer Identification Number (ITIN) filers.^[1] Eligibility policy changes and differences between programs increase claiming confusion.

The CTC and EITC’s Eligibility Requirements

	CTC Under TCJA Expansion	EITC: Workers with Children Under Permanent Law	EITC: Childless Workers Under Permanent Law
Citizenship Status/Residency	Claimed dependents must be a U.S. citizen, U.S. national, or U.S. resident. Claimed dependents must have lived with the taxpayer for more than half of the tax year, except for temporary absences due to special circumstances.	Must be a U.S. citizen or a U.S. resident for the entire tax year; if filing jointly and during any part of the year the claiming individual or their spouse were a nonresident, they are only eligible if they or their spouse is a U.S. citizen with an SSN or is a resident who was in the U.S. at least six months of the year they are filing and has an SSN.	Must be a U.S. citizen or a resident for the entire tax year; if filing jointly and during any part of the year the claiming individual or their spouse were a nonresident, they are only eligible if they or their spouse is a U.S. citizen with an SSN or is a resident who was in the U.S. at least six months of the year they are filing and has an SSN.
Relationship to Dependent Children	Claimed dependents must be the taxpayer’s child, stepchild, foster child, sibling, stepsibling, half-sibling, or a descendant of any of them (e.g., grandchild, niece, nephew).	Claimed dependents must be the taxpayer’s child, stepchild, foster child, sibling, stepsibling, half-sibling, or a descendant of any of them (e.g., grandchild, niece, nephew).	Not applicable to those claimed as a dependent.
Age	Claimed dependents must be under the age of 17 at the end of the tax year.	The child must be under the age of 19 at the end of the year or under 24 if they are a full-time student. There is no age limit for children who are permanently disabled.	The tax filer claiming the credit must be between the ages of 25 and 65, with exceptions for certain individuals with qualifying disabilities.
Income	The taxpayer’s annual income must be below certain thresholds, which vary depending on filing status and may be subject to phase-outs for higher income levels.	The taxpayer must have earned income from employment or self-employment. Passive income does not qualify. The taxpayer’s earned income and adjusted gross income (AGI) must fall within certain limits, subject to change each tax year.	The taxpayer must have earned income from employment or self-employment. Passive income does not qualify. The taxpayer’s earned income and AGI must fall within certain limits, subject to change each tax year.
Documentation	Children claimed for the credit must have an SSN. Claiming individual can have either an SSN or ITIN.	The taxpayer, their spouse (if applicable), and their qualifying children must have valid SSNs.	The taxpayer and their spouse (if applicable) must have valid SSNs.
Filing Status	The taxpayer may file as married filing jointly. Dependents may not file a joint return with their spouse except for the purpose of claiming a refund of withheld income taxes.	The taxpayer must file as single, head of household, married filing jointly, or qualifying widow(er) with a dependent child.	The taxpayer must file as single, head of household, married filing jointly, or qualifying widow(er).

Source: Internal Revenue Service (IRS)

Psychological Barriers and Stigmatization

Social stigma also creates barriers to credit uptake, influenced by various factors including concerns related to the public charge rule. This rule assesses whether immigrants seeking visas or green cards are likely to become dependent on government welfare programs. Such a determination can lead to denial of immigration status or future naturalization and contributes to a fear of government interaction among mixed-status immigrant families. Cultural norms rooted in a desire for self-sufficiency also disproportionately affect many immigrant populations. Despite the IRS’s role as a tax agency rather than an immigration enforcement entity, some immigrants worry that claiming tax credits they are eligible for might negatively impact their future citizenship prospects. The Trump administration’s modifications to the public charge rule in 2018 imposed stricter qualifications on applicants who used noncash public benefits, resulting in a 20% decline in immigrant families accessing public benefits for which they were eligible. While 70% of adults in immigrant families with children were aware of the public charge rule, 80% of them had misconceptions about which programs fell under the rule’s purview.

In 2022, following multiple legal challenges, the public charge rule underwent further changes, specifying that certain cash assistance programs fall under its purview but exempting earned income supports like the CTC and EITC. However, the lingering effects of the 2018 alterations, coupled with misconceptions about eligible programs, continue to discourage many immigrants from claiming their earned tax credits.

To address these challenges, BPC gathered immigration and tax policy experts and tax practitioners for a roundtable discussion. Participants highlighted the prevailing assumption within immigrant communities that claiming tax credits equates to receiving unearned income. To improve uptake, experts recommended using messaging such as “accessing benefits earned through tax contributions,” instead of “claiming free welfare” to emphasize the connection between taxes paid and the entitlement to these benefits. Immigrants’ lower claiming rate of public benefits is influenced by these psychological hurdles, inadequate outreach efforts by the government and other immigrant-serving institutions, and language barriers, reinforcing the need for targeted interventions to bridge these gaps.

The Role of Institutions in Outreach and Education

The U.S. tax system can prove overwhelming for immigrants who are unfamiliar with it, leading to reduced take-up rates. Insights from state revenue offices reveal that states pursuing a few key strategies, such as providing information in multiple languages and mandating employers inform employees about available credits, experienced higher take-up rates among all families, including immigrants.

In April, the IRS released their 2023 Strategic Operating Plan (SOP), which includes goals to better serve immigrant communities with personalized alerts, digital filing services, and expanded non-English resources, meaning faster delivery times for tax refunds and ITIN applications. However, the IRS’s SOP falls short of incorporating certain provisions that could help immigrant communities, notably creating a hotline to contact the ITIN unit.

Nonprofit and community organizations are key in raising awareness about tax credits among hard-to-reach communities. Institutions that possess pre-existing relationships with immigrant communities, such as cultural centers and religious institutions, are important tools in public benefit education. Other frequently-visited places, like food pantries, energy assistance centers, benefit distributors, and even schools and college campuses, are also essential in conveying information about eligible credits to immigrants.

For immigrant communities, low-income taxpayer clinics and Volunteer Tax Income Assistance (VITA) sites are critical to bridging language barriers and providing information about tax credits for which they are eligible. However, limited funding and volunteer shortages limit the number of people VITA sites can assist. Over the next 10 years, the IRS has allocated $3.2 billion in taxpayer service funding and requested $800 million to fund pre-filing taxpayer assistance and education efforts.

State and local governments also play an important role. Nine states and the city of Philadelphia have laws in place that require employers to notify employees of EITC programs. While this may be unhelpful to self-employed immigrants, it does provide an additional resource for immigrant employees to learn about public benefits. Similarly, in an effort to expand CTC outreach, the city of Boston has convened coalitions of government officials and research, law, and advocacy organizations to organize webinars and in-person information sessions to educate eligible immigrant communities on how to access the state CTC.

As Congress deliberates reforms to the CTC and EITC, among other tax law changes, policymakers and stakeholders have an opportunity to address the administrative barriers that hinder immigrant communities from claiming their earned benefits. By doing so, the U.S. could create a more inclusive and supportive tax credit system for all.

In recent months, BPC interviewed academic experts and practitioners across the country who provide taxpayer support. These discussions revealed barriers unique to immigrant communities when navigating the filing process, the constraints of VITA sites, and effective strategies that VITA sites and others have used to improve tax credit education and awareness.

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[1] An ITIN is a tax processing number available to certain foreign national nonresidents who still are required to file tax returns, as well as resident non-U.S. citizens who cannot obtain a SSN due to their immigration status. This includes undocumented immigrants, dependents and spouses of U.S. citizens who do not themselves have citizenship but are included on the citizens tax filing, dependents and spouses of foreign nationals on a temporary visa who do not have work authorization and thus cannot obtain an SSN, and other foreign nationals legally residing in the U.S. but who do not have an SSN. Individuals eligible for SSNs include U.S. citizens, lawful permanent residents, refugees, and asylees.