06/12/2026
WILL BANK ACCOUNTS OF UNDOCUMENTED INDIVIDUALS IN THE U.S. BE CLOSED?
Here’s the explanation:
This is not a new tax law. It is an Executive Order issued on May 19, 2026, directing the Treasury Department, FinCEN, the CFPB, and banking regulators to develop guidance and rules enabling banks to identify financial risks associated with individuals without work authorization, ITIN holders, off-the-books cash payments, and payroll tax evasion.
What does the order specifically require?
The order instructs the Treasury Department to issue guidance to banks regarding “red flags” involving:
* Employers evading payroll taxes;
* Off-the-books payroll practices;
* Use of nominee accounts, shell companies, or third-party processors;
* Repeated deposits or withdrawals below reporting thresholds;
* Payments made through Zelle, cash apps, or unregistered Money Service Businesses (MSBs);
* Use of an ITIN to open bank accounts or obtain credit when legal status has not been verified.
The order also directs regulators to propose changes to the Bank Secrecy Act to strengthen Customer Due Diligence requirements and allow banks to request additional information, including immigration status or employment authorization when relevant to fraud risks, identity theft concerns, or illegal activity. For example, situations involving check-cashing under another person’s name to avoid paying taxes could trigger scrutiny.
Impact on Individuals with an ITIN
The ITIN remains valid and continues to be used for tax compliance purposes. The IRS confirms that an ITIN is intended solely for tax administration. It does not grant immigration status, authorize employment, or serve as general identification outside the tax system.
However, in practice, this order could result in:
Greater Difficulty Opening Bank Accounts
Banks may request additional documentation such as:
* Passport;
* Visa;
* Proof of legal status;
* Employment authorization;
* Proof of address;
* Source of income, including employer information and explanations for deposits.
Greater Difficulty Obtaining Credit
The order states that banks may consider the risk of deportation or loss of income when evaluating a borrower’s ability to repay debt. This could affect:
* Mortgages;
* Auto loans;
* Credit cards;
* Lines of credit.
Having an ITIN is not illegal. However, an ITIN combined with suspicious activity, cash payments, repeated deposits, and informal payroll practices that fail to pay payroll taxes could trigger additional bank reviews.
Impact on Employers Paying Cash to Unauthorized Workers
This is perhaps the most significant concern.
The order directly targets employers who:
* Pay workers in cash without reporting payroll taxes;
* Fail to withhold taxes;
* Fail to file Forms W-2 or 941;
* Use ITINs as substitutes for Social Security numbers;
* Use third parties to conceal payroll activities.
These employers are likely to be among the first identified.
Existing Legal Requirements
These issues already existed under current law:
* Employers must withhold income tax from wages under IRC §3402.
* Employers must withhold F**A taxes under IRC §3102.
* Under IRC §7202, willfully failing to collect or remit payroll taxes may constitute a felony punishable by up to five years in prison. ATTENTION!
* Under 8 USC §1324a, it is illegal to knowingly hire or continue employing someone who is not authorized to work in the United States.
An Important Technical Point
Paying workers in cash is not illegal by itself.
What is illegal includes:
* Failing to report wages;
* Failing to withhold payroll taxes;
* Failing to issue Form W-2 when an employer-employee relationship exists;
* Misclassifying workers and issuing improper Forms 1099;
* Accepting an ITIN as proof of work authorization;
* Structuring deposits or withdrawals to avoid bank reporting requirements;
* Knowingly employing unauthorized workers.
The IRS specifically advises employers not to accept an ITIN in place of a Social Security number for employment identification purposes.
What Changes in Practice?
Previously, the primary risks came from the IRS, Department of Labor, or ICE.
Now, banks may become the first line of detection.
Practical Example #1
A restaurant deposits $40,000 weekly, withdraws $18,000 in cash every Friday, has no payroll processor, reports very few W-2 employees, yet appears to have many workers.
Under this Executive Order, such a pattern could fit the red flags associated with off-the-books payroll practices and payroll tax evasion.
Practical Example #2
An individual with an ITIN receives substantial income from informal sources and applies for an auto loan or mortgage but cannot demonstrate employment authorization or identify the source of those payments.
The bank may request additional documentation, deny credit, or file a Suspicious Activity Report.
Recommendations
For Employer Clients
Regularize payroll immediately by ensuring compliance with:
* Forms W-4 and I-9;
* Forms W-2 and 941;
* EFTPS deposits;
* Workers’ compensation coverage;
* Timekeeping records;
* Proper worker classification (employee versus independent contractor).
For ITIN Clients
* Continue filing tax returns;
* Maintain accurate records;
* Avoid unexplained cash deposits;
* Keep personal and business accounts separate;
* Do not present an ITIN as evidence of employment authorization.
Bottom Line
The Executive Order does not criminalize the use of an ITIN. However, it may make the combination of ITIN usage, cash payments, and employment of unauthorized workers a higher-risk area from banking, tax, and immigration perspectives.
Thank you for reading!
