Fear of deportation is keeping undocumented immigrants away from tax filing season, and the consequences could drain hundreds of billions from federal coffers over the next decade. Tax professionals report losing massive portions of their client bases as anxiety over immigration enforcement spreads through immigrant communities nationwide.
Daisy Schmidt runs a tax service in Springfield, Virginia focused on Latino clients. This year alone, she lost 75 percent of her customer base. "They said, 'If they can deport me, what am I filing taxes for?'" Schmidt recalled. The message from clients was clear: why cooperate with a system that might expose you to federal immigration authorities.
The exodus from tax filing creates a crushing economic reality for government finances. Yale's Budget Lab projects that reduced tax compliance could cost the federal government between $147 billion and $479 billion in lost revenue over 10 years. The IRS itself estimates that just a 1 percent drop in voluntary compliance would wipe out $46 billion in revenue.
Multiple policy changes have fueled this breakdown in tax compliance. The Trump administration pushed through a data-sharing agreement between the IRS and the Department of Homeland Security, granting immigration authorities access to names and addresses of undocumented workers. Though a federal judge paused and later blocked this arrangement, the damage to trust has already occurred. Additionally, undocumented immigrants lost eligibility for the child tax credit in 2025, even when their children are U.S. citizens, eliminating a major financial incentive to file.
Edgar Villacorta, who owns Latin Tax with offices in Maryland and Virginia, watched 30 to 40 percent of his clients skip filing this year. "They see that it isn't giving them any benefit," he explained. Some of his competitors reported losing half their clientele.
The numbers are staggering when aggregated across the country. Approximately half of undocumented immigrant households typically file returns. In 2022 alone, they contributed an estimated $96.7 billion in federal taxes, according to the Institute on Taxation and Economic Policy. These are workers legally required to pay taxes despite their immigration status, many of whom filed precisely to demonstrate commitment to the system when applying for legal residency.
Luisa Godinez-Puig, a senior research associate at the Urban-Brookings Tax Policy Center, emphasized the systemic danger. "The system relies heavily on this trust, because people can decide not to do it," she said. Breaking that trust through data sharing represents a fundamental rupture in how immigration and taxation have historically coexisted.
For decades, the IRS maintained a strict separation between tax enforcement and immigration enforcement. That firewall made undocumented workers willing to file returns despite their precarious legal status. "Historically, the IRS has been very, very good at keeping taxpayer information highly confidential," Godinez-Puig noted. "To think that the IRS would share information with any agency would have been unthinkable a few years ago."
The fallout extends beyond lost federal revenue. Up to 2.7 million children who are U.S. citizens or lawful permanent residents could lose access to the child tax credit due to these policy shifts. Child poverty has already surged to between 13 and 16 percent nationally, roughly 10 million to 11.4 million children, a sharp climb from a record low of 5.2 percent in 2021. The credit historically served as a crucial economic lifeline for families.
An Urban Institute survey found that one in four adults in immigrant families, regardless of legal status, worry about deportations. One in six reported personally seeing or knowing someone detained by Immigration and Customs Enforcement in 2025. That ambient fear translates directly into decisions to avoid any contact with federal agencies, including tax filing.
Immigrant advocacy groups have called on the Trump administration to recommit publicly to court orders blocking data sharing and to cease efforts to weaponize federal databases for immigration enforcement. "The government's priority should be to ensure everyone feels safe when following the law and filing their taxes," wrote Ben D'Avanzo and Sarah Krieger, senior strategist and senior policy counsel at the National Immigration Law Center.
Author James Rodriguez: "This isn't abstract policy damage, it's real money vanishing and real children losing assistance because the government broke its most fundamental promise: that cooperation won't lead to deportation."
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