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How legal immigrants can claim U.S. tax credits

How tax credits can save money
How tax credits can save money 01:10

People who legally immigrate to the U.S. have any number of reasons for doing so. And although U.S. tax law isn't likely to be high on most immigrants' list, it does have some features that can make their lives here at least a little better financially.

One of these features are refundable tax credits. They're especially attractive because they provide a tax refund even if the individual has to pay no federal income taxes.

Two of the most widely claimed refundable tax credits are the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). Both were initially designed as a subsidy to lower-income people who want to work but need financial assistance to do so.  

Fraud prevention

But the 2015 Protecting Americans from Tax Hikes, or PATH Act, changed the requirements to claim these valuable tax credits, including that anyone claiming one must have a Social Security number valid for employment in the U.S. One reason for this provision is to prevent undocumented immigrants from illegally claiming these credits. Only people lawfully eligible to work in the U.S. can claim them.

These tax credits can result in a tax refund of up to $6,431 in 2018 (for the EITC) and up to $2,000 for each qualifying child (for the CTC). Tax filers with qualifying income and no children can still claim an EITC of up to $519. All of the EITC and up to $1,400 of the CTC is refundable, meaning filers who claim these credits will receive a refund even if they pay zero federal taxes.

The EITC and CTC have been found to be especially prone to fraud, so the soonest the IRS can issue tax refunds for people who claim them is later in February. This gives the IRS extra time to vet the returns and the identity of those filing them. 

There's good reason for this: The estimated improper payment rate for the CTC was as high as 30 percent, resulting in improper payments of up to $7 billion per year. The most recent IRS review estimated that about 24 percent of EITC refunds, totaling over $14 billion annually, were paid improperly. 

Getting a Social Security number

So how do immigrants obtain a Social Security number that will allow them to claim these tax credits and other government services? Generally, only lawfully admitted noncitizens authorized to work in the U.S. by the Department of Homeland Security (DHS) can get a Social Security number valid for work-related reasons. Anyone who has a Social Security number has their wages reported to the IRS and the Social Security Administration.  

Generally, immigrants who aren't authorized to work can apply for an Individual Taxpayer Identification Number (ITIN) and use it for tax purposes, including filing tax returns. But ITNS can't be used to claim refundable tax credits.

Applying for a Social Security number is free. Immigrants have two ways to get one. You can apply in your home country before coming to the U.S. when filing out an application with the U.S. Department of State for an immigrant visa and work permit. In almost all cases, you won't have to visit a Social Security office when you arrive in the U.S.

Or after you arrive in the U.S. and are granted legal immigration status, you can visit a Social Security office in person. Here's list of the items you'll need to bring when you go there. 

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