Nevada, Florida and Texas Lead US Tax Debate as Undocumented Immigrants Face Higher Rates Than Wealthy

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Nevada, Florida and Texas lead US tax debate as undocumented immigrants face higher rates than wealthy residents, according to new research. The findings reveal significant differences in state and local tax burdens, highlighting undocumented workers’ economic contributions and raising questions about taxation, immigration policy and financial fairness across America.

US Tax Research Reveals $96.7 Billion Contribution From Undocumented Immigrants

The United States is facing renewed scrutiny over immigration, taxation and employment after a proposed citizenship-related question appeared in the draft 2026 federal income tax return.

The development comes alongside research showing that undocumented immigrants contributed an estimated $96.7 billion in federal, state and local taxes during 2022.

According to the Institute on Taxation and Economic Policy (ITEP), $59.4 billion went to the federal government, while $37.3 billion supported state and local authorities. The findings highlight the financial participation of undocumented residents in the American economy.

For the travel and tourism industry, the debate raises broader questions about employment, tax compliance and the economic circumstances of workers supporting hospitality, accommodation, food services and other visitor-facing businesses.

Nevada and Florida Record the Largest Tax Rate Gaps

An analysis presented by Mendoza Law Firm compares the estimated state and local tax burden on undocumented immigrants with the effective rates paid by the wealthiest one per cent of households.

Nevada leads the ranking. Undocumented residents pay an estimated 8.4 per cent of their income in state and local taxes, compared with 2.8 per cent among the state’s highest earners.

Florida follows, with undocumented immigrants paying 8.0 per cent against 2.7 per cent for the richest households.

South Dakota ranks third, followed by Tennessee and Washington.

The comparison measures the share of income paid in taxes rather than the total dollar amount contributed by each group. It therefore identifies differences in effective tax burdens, not the overall financial value of individual taxpayers.

Ten US States Show Significant Differences in Tax Burdens

The Mendoza Law Firm analysis, drawing on ITEP estimates, identifies the following states.

Source: Mendoza Law Firm analysis of ITEP estimates for 2022. Ratios are rounded.

Together, undocumented residents in these ten states contributed approximately $9.3 billion in state and local taxes, based on the figures supplied in the analysis.

Texas accounted for the largest contribution among the ten, at approximately $4.87 billion, followed by Florida at $1.84 billion and Washington at nearly $1 billion.

Why States Without Wage Income Taxes Show Larger Differences

Nine of the ten states listed do not impose a broad state individual income tax on wages. Arizona is the exception.

In states relying heavily on sales, excise and property taxes, households with modest earnings can pay a larger percentage of their income than wealthier households.

Sales taxes apply to everyday purchases, including goods and services bought by workers employed in tourism destinations.

Property taxes also affect renters indirectly when landlords incorporate those expenses into accommodation costs.

ITEP estimates that undocumented immigrants paid an average effective state and local tax rate of 8.9 per cent nationwide in 2022, compared with 7.2 per cent among the richest one per cent of households.

IRS Citizenship Proposal Creates Questions for Taxpayers

The draft 2026 Form 1040 reportedly includes a question asking whether taxpayers are US citizens, US nationals or foreign nationals legally authorised to work in the country.

The question would represent a change in the information requested through the standard federal income tax filing process.

However, a draft form does not establish a final filing requirement. Its implementation, wording and administrative consequences depend on the final IRS documentation.

Taxpayer identification numbers also require careful distinction. An Individual Taxpayer Identification Number, or ITIN, enables certain individuals who are not eligible for Social Security numbers to comply with federal tax obligations.

Not every ITIN holder is undocumented.

According to the National Taxpayer Advocate, approximately 3.8 million returns filed for tax year 2022 included an ITIN. Those returns reported approximately $14.4 billion in income taxes after credits and $6.5 billion in Social Security and Medicare taxes.

What the Debate Means for American Tourism and Hospitality

The implications for tourism extend beyond tax administration.

Hotels, restaurants, resorts, catering companies and destination service providers operate within labour markets shaped by immigration rules, employment eligibility and workforce availability.

Workers across these industries also participate in local economies through housing, transportation, retail purchases and everyday spending.

For major tourism states such as Nevada, Florida, Texas and Arizona, the findings underline the importance of understanding how tax policy interacts with regional employment and consumer activity.

However, the research does not establish how many undocumented taxpayers work directly in tourism. Nor does it demonstrate that the proposed IRS question will cause staffing shortages, cancellations or measurable visitor spending losses.

Any assessment of such consequences would require separate employment and industry data.

Tax Contributions Strengthen the Case for Evidence-Based Policy

ITEP estimates that providing work authorisation to undocumented immigrants could increase their combined annual tax contributions by approximately $40.2 billion, under the assumptions used in its research.

The organisation projects that additional employment opportunities, higher earnings and greater income tax compliance could contribute to that increase

The broader debate also involves immigration enforcement, taxpayer privacy, legal compliance and the responsibility of businesses to verify employment authorisation.

For policymakers and tourism businesses, understanding these different considerations is essential when evaluating potential changes to federal tax administration.

The findings from Nevada, Florida and Texas highlight substantial differences in tax burdens between undocumented immigrants and wealthy households. As discussions surrounding immigration and federal tax reporting continue, the research underscores the importance of fair taxation, economic participation and informed policymaking that recognises contributions to American communities and businesses.